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Full text of "Departments of Veterans Affairs and Housing and Urban Development, and independent agencies appropriations for 1994 : hearings before a subcommittee of the Committee on Appropriations, House of Representatives, One Hundred Third Congress, first session"

DEPARTMENTS OF VETERANS AFFAIRS AND 

HOUSING AND URBAN DEVELOPMENT, AND 

INDEPENDENT AGENCIES APPROPRIATIONS FOR 

1994 

Y4.AP6/t:V64/4/W/ _^ 
PT. 4 TGS 

Oepartncnts of Uetcrjn^ ftffiii-s ani . . 

OUJttUUMMlTTEJi] OF THE 

COMMITTEE ON APPROPRIATIONS 
HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRD CONGRESS 

FIRST SESSION 

SUBCOMMITTEE ON VA, HUD, AND INDEPENDENT AGENCIES 

LOUIS STOKES, Ohio, Chairman 

ALAN B. MOLLOHAN, West Virginia JERRY LEWIS, California 

JIM CHAPMAN, Texas TOM DeLAY, Texas 

MARCY KAPTUR, Ohio DEAN A. GALLO, New Jersey 

ESTEBAN EDWARD TORRES, California 
RAY THORNTON, ARKANSAS 

Richard N. Malow, Paul E. Thomson, Michelle M. Burkett, and Daniel A. Cantu, 

Staff Assistants 

PART 4 

Page 

Selective Service System 1 

American Battle Monuments Commission 119 

Department of the Army — Cemeterial Expenses 157 

Neighborhood Reinvestment Corporation 197 

National Credit Union Administration 421 

United States Office of Consumer Affairs 549 

Consumer Information Center 713 

Consumer Product Safety Commission. ..^.|,>^|i,..^ 773 

Commission on National and Community SerWa? ^.^^. ■.. 889 

Printed for the use of the Commit|ee on Appropriations 



DEPARTMENTS OF VETERANS AFFAIRS AND 

HOUSING AND URBAN DEVELOPMENT, AND 

INDEPENDENT AGENCIES APPROPRIATIONS FOR 

1994 

HEARINGS 

BEFORE A 

SUBCOMMITTEE OF THE 

COMMITTEE ON APPROPRIATIONS 
HOUSE OF REPRESENTATR^S 

ONE HUNDRED THIRD CONGRESS 

FIRST SESSION 



SUBCOMMITTEE ON VA, HUD, AND INDEPENDENT AGENCIES 

LOUIS STOKES, Ohio, Chairman 

ALAN B. MOLLOHAN, West Virginia JERRY LEWIS, California 

JIM CHAPMAN, Texas TOM DeLAY, Texas 

MARCY KAPTUR, Ohio DEAN A. GALLO, New Jersey 

ESTEBAN EDWARD TORRES, California 
RAY THORNTON, ARKANSAS 

Richard N. Malow, Paul E. Thomson, Michelle M. Burkett, and Daniel A. Cantu, 

Staff Assistants 



PART 4 

Page 

Selective Service System 1 

American Battle Monuments Commission 119 

Department of the Army — Cemeterial Expenses 157 

Neighborhood Reinvestment Corporation 197 

National Credit Union Administration 421 

United States Office of Consumer Affairs 549 

Consumer Information Center 713 

Consumer Product Safety Commission 773 

Commission on National and Community Service 889 

Printed for the use of the Committee on Appropriations 

U.S. GOVERNMENT PRINTING OFFICE 
67-798 O WASHINGTON : 1993 

For sale by the U.S. Government Printing Office 
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 
ISBN 0-16-0A0911-X 



COMMITTEE ON APPROPRIATIONS 
WILLIAM H. NATCHER, Kentucky, Chairman 



JAMIE L. WHITTEN, Mississippi, 

Vice Chairman 
NEAL SMITH, Iowa 
SIDNEY R. YATES, Illinois 
DAVID R. OBEY, Wisconsin 
LOUIS STOKES, Ohio 
TOM BEVILL, Alabama 
JOHN P MURTHA, Pennsylvania 
CHARLES WILSON, Texas 
NORMAN D. DICKS, Washington 
MARTIN OLAV SABO, Minnesota 
JULIAN C. DIXON, California 
VIC FAZIO, California 
W G (BILL) HEFNER, North Carohna 
STENY H. HOYER, Maryland 
BOB eARR, Michigan 
RICHARD J. DURBIN, Illinois 
RONALD D. COLEMAN, Texas 
ALAN B. MOLLOHAN, West Virginia 
JIM CHAPMAN, Texas 
MARCY KAPTUR, Ohio 
DAVID E. SKAGGS, Colorado 
DAVID E. PRICE, North Carolina 
NANCY PELOSI, California 
PETER J. VISCLOSKY, Indiana 
THOMAS M. FOGLIETTA, Pennsylvania 
ESTEBAN EDWARD TORRES, California 
GEORGE (BUDDY) DARDEN, Georgia 
NITA M. LOWEY, New York 
RAY THORNTON, Arkansas 
JOSfi E SERRANO, New York 
ROSA L. DeLAURO, Connecticut 
JAMES P. MORAN, Virginia 
I^UGLAS "PETE" PETERSON, Florida 
JOHN W. OLVER, Massachusetts 
ED PASTOR, Arizona 
CARRIE P. MEEK, Florida 



JOSEPH M. McDADE, Pennsylvania 

JOHN T. MYERS, Indiana 

C W. BILL YOUNG, Florida 

RALPH REGULA, Ohio 

BOB LIVINGSTON, Louisiana 

JERRY LEWIS, California 

JOHN EDWARD PORTER, Illinois 

HAROLD ROGERS, Kentucky 

JOE SKEEN, New Mexico 

FRANK R. WOLF, Virginia 

TOM Delay, Texas 

JIM KOLBE, Arizona 

DEAN A. GALLO, New Jersey 

BARBARA F. VUCANOVICH, Nevada 

JIM LIGHTFOOT, Iowa 

RON PACKARD, California 

SONNY CALLAHAN, Alabama 

HELEN DELICH BENTLEY, Maryland 

JAMES T. WALSH, New York 

CHARLES H. TAYLOR, North Carolina 

DAVID L. HOBSON, Ohio 

ERNEST J. ISTOOK, Jr., Oklahoma 

HENRY BONILLA, Texas 



FREDERICK G. MOHRMAN. Clerk and Staff Erector 



(II) 



DEPARTMENTS OF VETERANS AFFAIRS AND 
HOUSING AND URBAN DEVELOPMENT, AND 
INDEPENDENT AGENCIES APPROPRIATIONS 
FOR 1994 



Wednesday, March 31, 1993. 

SELECTIVE SERVICE SYSTEM 

WITNESSES 

ROBERT W. GAMBINO, DIRECTOR 

G. HUNTINGTON BANISTER, ACTING EXECUTIVE DIRECTOR/CONTROL- 
LER 
LEWIS C. BRODSKY, ASSISTANT DIRECTOR FOR PUBLIC AFFAIRS 
FREIDA BROCKINGTON, MANAGER, REGISTRATION DIVISION 
NORMAN MILLER, ACTING ASSOCIATE DIRECTOR FOR INFORMATION 
MANAGEMENT 

Mr. Stokes. The committee will come to order. 

I would like, at this time, to welcome Mr. Robert Gambino, Di- 
rector of the Selective Service System. 

And, Mr. Gambino, we would like to ask you to introduce any of 
your associates who are with you. And I will make a statement and 
will recognize you for your statement. 

INTRODUCTION OF WITNESSES 

Mr. Gambino. Sir, it is a pleasure for me to introduce Hunt Ban- 
ister, our Controller and also our Acting Executive Director. 

Mr. Stokes. Good morning, sir. 

Mr. Gambino. And on my left is Lew Brodsky, Assistant Director 
for Public Affairs and Acting Assistant Director for Congressional 
Affairs since we don't have one. 

And this is Freida Brockington, who heads our Registration Divi- 
sion. And on her right is Norm Miller, who is the Acting Associate 
Director for Information Management, since we don't have one of 
those either. It is a very lean and mean organization these days. 

Mr. Stokes. We are pleased to have all of you in attendance. We 
welcome you. 

The Selective Service System is requesting $29,012,000 and 263 
FTE for fiscal year 1994. This represents a $396,000 increase in 
budget authority and a 4 FTE decrease in staffing. 

Mr. Gambino, at this time, I recognize you for your statement. 
We will, of course, put your entire statement into the record at this 
point; and you may proceed to summarize it if you would like. 

(1) 



Mr. Gambino. I have about a five-minute oral statement, if I 
may. 

Mr. Stokes. You certainly may. Please do. 

Mr. Gambino. I am pleased to appear once again before this sub- 
committee. And I do have a written statement, and I would like to 
submit that for the record. 

Mr. Stokes. Without objection, it will be inserted at this point. 

[The information follows:] 



Statement of Robert W. Gambino 
Director, Selective Service System 

Thank you Mr. Chairman. 

I have now been with the Selective Service System for two years and I am 
pleased to report that our full-time employees are professionally performing an important 
mission with great dedication and a minimum of resources. 

But first, I must admit that I feel somewhat embattled as I appear before you 
today. A handful of your colleagues have signed a letter to President Clinton in which 
they ask him to terminate peacetime registration and consider abolishing our Agency. 
This is not a new initiative; we've seen it several times over the years, and a similar effort 
by many of the same legislators brought an amendment to the House floor last summer. 
It would have terminated funding for Selective Service. Not surprisingly, it was soundly 
defeated by a non-partisan vote of 310 to 96. But now, perhaps spurred by the fact that 
there is new leadership in the White House, the same tired arguments are being voiced 
one more time. 

At this point, some might say that I have little interest in anything that may affect 
the Selective Service System. After all, as the kids say, I'll soon be "history" because 
I am a hold-over from the previous administration. But to the contrary, I will always be 
quick to defend the President's budget for what I think is one of the greatest defense 
bargains in America today. Because from what I've observed during my two years with 
this Agency, the taxpayers are getting more than their money's worth from this small 
agency. And believe me, in my years in federal government, I've seen waste and I know 
what it looks like. The Selective Service is an efficient organization performing a 
valuable service with an annual budget at a level that couldn't even buy ons. Harrier 
Jump Jet for the Marine Corps. 



StiB an important part of National Defense 

Now, our detractors might say. "So what? We still don't need your Agency 
anymore. It's a dinosaur. The Cold War is over." 

To them I say this: Perhaps the world is safer today, but then again, more 
nations have, or are acquiring, nuclear capability. And the very break-up of the Soviet 
Bloc which we all so recently applauded has produced and continues to produce its 
own particular brand of fall-out which may yet pose a threat. As President Clinton said 
in his State of the Union message, "this is still a dangerous and uncertain time." We 
must "be prepared to lead a world challenged by ethnic conflict, (and) by the 
proliferation of weapons of mass destruction." 



We, as Americans, tend to be trusting and optimistic about the future. But, our 
memories must not become so short term that we jeopardize our national security. 
Selective Service is a defense manpower "insurance policy." This is especially true at 
a time when we are downsizing both our active and reserve forces at unprecedented 
rates. So I make the case to you today that now. perhaps more than ever, we need to 
have this inexpensive back-up system, tried, true, and ready, which would allow America 
to reconstitute forces at a moment's notice in a national emergency. Emergencies 
simply cannot be perfectly forecast, no matter what the pundits and experts say. I know 
of no national security disaster in the past which was widely forecast. And despite our 
intelligence resources, history tells us that the plain truth is that no one possesses a 
crystal ball, especially when it comes to human nature and unstable governments. If we 
maintain Selective Service capabilities and never need them, we pay in dollars. But if 
we need those capabilities and don't have them, we pay in lives. 



Need to economize drives Agency restructuring 

The Selective Service System continues to perform its vital mission with an annual 
budget which is smaller today, in real dollars, than it was in 1983, ten years ago. But 
we are well aware that these are times for more belt tightening and improved efficiency. 
We are doing our part. Over the past few years, we have been implementing a plan 
to streamline the Agency even further. We are now in the final stages of this plan. 
These changes have included a realignment of the Agency's military reserve personnel 
over a period of two years and was completed in 1992. The adjustments in our Guard 
and Reserve positions not only reduced average military rank to better meet mobilization 
requirements, but they also created a cost savings in the process. Now we are engaged 
in an ambitious project to examine and realign our full-time civilian employee structure. 

Ordinarily, we would be content with the effectiveness and efficiency of our 
Agency. The fact is, we remain mobilization ready, and we have been able to maintain 
very high levels of registration compliance, exceeding 96 percent of all men ages 18 
through 25. We know that we have a terrific track record and that we are good stewards 
of the tax dollars entrusted to us. But in today's climate especially, we recognize the 
need to do even more and spend less. 

With this in mind, in 1992 we began a systematic, critical self-examination of our 
full-time civilian structure and operations. Like the Guard and Reserve alignments that 
preceded it, our purpose is to bring the total Agency structure in line with today's 
missions. Additionally, we are driven by the need to make better use of state-of-the-art 
automation and to reduce operating costs. Selective Service wants to do its share to 
help reduce the Federal deficit. 

The principles of sound management are being applied to this endeavor which 
will result in pivotal changes and significant cost savings. But the process of change 



is evolutionary and time consunning, and the human factor, such as considering the 
impact of change on our employees and our need to preserve the ability to accomplish 
missions, must be taken into account as well. In the end, our goal is to achieve 
increased efficiencies and cut costs, and we recognize this will include eliminating or 
restructuring underemployed full-time positions. 



Survey conducted by outside team 

One tool we chose to employ in the evaluation process was to call in an outside 
organization to conduct a manpower survey. It provided us with its analysis and 
recommendations in the form of a detailed report which contains many suggestions for 
consolidations and reductions. And, in many instances, the report also served as a 
"reality check" for management, confirming the need for changes we were already 
making. It presented many constructive ideas, but it also contained some serious flaws 
in rationale and off-target recommendations. 

In hindsight, we believe the contracted survey team had difficulty in understanding 
the unique operational requirements associated with an independent Federal agency 
with a limited budget. There is no parallel between the Selective Service System and 
the types of organizations the team normally surveys. In fact, the team members stated 
that ours was the first independent entity they had surveyed. 

Several of the changes they recommended might save dollars in the long run, but 
short-term implementation is unaffordable. Let's take one of many examples. The study 
team recommended the immediate purchase and use of computer assisted software 
engineering (CASE) tools as a means of reducing programming personnel and time. 
CASE tools were considered by our Information Management Directorate (IM) several 
years ago and found to be too expensive. 

MAGEC is the CASE tool software recommended by the contract survey team. 
Product literature and the price schedule for fvlAGEC show a base price of $525,000, 
plus several add-ons, and a 15 percent per annum maintenance charge. IM has 
requested literature on competing products. The number of CASE tool products 
exceeds 1 00 and the cost varies considerably. IM has not yet identified a CASE product 
that interfaces with the data base management software. System 2000, that is used on 
our mainframe computer. 

Before CASE tools can be appropriately evaluated and selected, educating 
personnel in CASE tool methods and technology transition would be required and a 
formal process assessment of the SSS systems development life cycle and technical 
environment must be conducted. This would involve many people and a substantial 
amount of time. Added to this is the cost of a formal procurement. 



That's one example of the many deficiencies and arguable recommendations in 
the report, but there are positive attributes, and they are being integrated with our overall 
restructuring program. Certainly, recommended changes that make sense and need no 
further evaluation have been, and will continue to be, implemented as soon as possible. 



Agency streamlining and improvements undenway 

Our self-evaluations, along with confirming findings in the contract survey, are 
allowing us to move ahead with specific improvements. We are expending a substantial 
amount of effort to streamline our organizational processes. This has included training 
senior management in the principles of Total Quality Management, and introducing all 
Agency employees to the precepts of TQM. We are still in the early stages of TQM 
implementation at Selective Service, but our Agency has formed a Quality Council and 
designated an individual to serve as TQM Coordinator, and we are in the process of 
training employees as "facilitators. " We have also challenged our employees to become 
more personally involved in the process of continuous improvement, and they have 
produced a TQM campaign slogan which is displayed on a banner at the entrance to 
our National Headquarters, "Dare to Share Your Very Best-Total Quality Management." 

With the focus on quality improvement, I can report that changes have already 
been made or are underway. For example, we have relocated the Status Information 
process from National Headquarters to the Data Management Cento, where it has 
become more automated. Through this process, we check our records for evidence of 
any Selective Service communication with men born after December 31,1 959 who have 
not registered, and are now older than 26. These nonregistrants come to our attention 
when they apply for government training programs, student loans, or federal jobs. Under 
the law, they are ineligibile for these programs, unless they can be prove that their failure 
to register was not willful. We help the government agencies administering these 
programs and benefits determine the status of these men. We also are testing a 
prototype system to improve the process of maintaining records on board members. 
The Standardized Board Member Program simplifies and standardizes procedures for 
capturing and maintaining data and by automatically generating forms and letters with 
easy-to-use software. The prototype system is being tested in two Regions and will be 
evaluated in late spring or early summer in order to determine if the system is suitable 
for nationwide implementation. 

Our Agency is also converting to a new accounting system, the Federal Financial 
System (FFS) under a servicing agreement with the Department of the Interior. When 
the conversion is completed, FFS will provide Selective Service with an accounting 
system which meets General Accounting Office requirements and a system which is 
capable of handling the additional workload during mobilization. Also, the system will 
provide a better interface with payroll and personnel systems, which are personally 
serviced by the Interior Department. 



To reduce operating expenses by decreasing the volume of address verification 
postcards we print and nnail to registrants, we have implennented a National Change of 
Address program. A tape file of young men in our prime age groups is sent to a vendor 
licensed by the Postal Service. Addresses are then matched against all change of 
address forms filed in post offices throughout the nation in the prior 36 months. This 
new program has resulted in a cost avoidance in Fiscal Year 1992. 



Improvements through more automation 

We continue seeking ways to use new technologies. An example is our 
aggressive search for a system capable of automating much of the data entry processes 
at the Data Management Center. Sophisticated scanning technology, capable of 
reading the information directly from Selective Service forms, shows great promise. 
Scanning in data, if accurately done, would eliminate much of the labor-intensive 
keyboard entry process. In 1992, a task group investigated and evaluated optical and 
intelligent character recognition (OCR/ICR) technology. A test was conducted using a 
private contractor in September 1992. Based upon the encouraging test results and our 
own evaluation, we are pursuing this alternative method of rapid data entry of large 
volumes of data. A requirements analysis was completed in January 1993 and 
forwarded to our procurement office in February for review and planning. The plan is 
to first use ICR technology to read the registration reminder mail-back card. It is 
estimated that once implemented, this technology may provide the opportunity to 
eliminate some of our full-time data entry positions. We will evaluate what other forms 
could be read using ICR and implement the technology where practical. 

Automation is not only important at the Data Management Center, it is now a part 
of nearly every Agency employee's daily routine as computer networking has become 
commonplace throughout Selective Service. As of March 20, 1993, a local area network 
was installed in each of the six Regions. This advanced technology provides many 
opportunities for increased efficiency and effectiveness for work groups. The 
microcomputer users now have the capability to share data files and to utilize shared 
resources, such as printers and software, through the network and its large storage 
capacity. The network also provides bulletin board and electronic mail services. All six 
networks are connected to the headquarter's networks to form a wide area network. 

Several other automation projects that have contributed to efficiency and effected 
cost savings include the Interactive Voice Response System which is providing an 
automated method of handling routine public inquiries, and adoption of hardware and 
software to perform image and text retrieval using computers and CD ROM disks. 



8 



Consolidating to improve effidency 

We have recently made some decisions to consolidate and co-locate functions 
which should result in some cost savings. For example, our National Headquarters 
move, scheduled for this coming summer, will co-locate the Systems Development 
Division, now housed in Alexandria, with the rest of the Headquarters staff. And we have 
also decided to group together in one area the Inspector General, General Counsel, 
Congressional and Intergovernmental Affairs Office, and the TQM Coordinator, allowing 
them to share clerical support. 

As this process of organizational improvement continues, we will pinpoint areas 
of redundancy of function and surpluses which may be eliminated. In fact, some cuts 
have already been made. We have decided not to fill the position of Executive Director, 
and the secretarial position that supported it, except on an acting basis until a Deputy 
Director comes on board.. We have also abolished the position of Assistant General 
Counsel, and three supervisory positions at the Data Management Center. We have also 
instituted measures to reduce staff by attrition. New vacancies that occur may be filled 
on an exception basis only, and only after reexamination of the position to assure 
bonafide need. 

In summary. Selective Service is committed to change and is actively pursuing 
it. We are finding better ways to conduct official business. We are also cognizant that 
there may be substantial downsizing demands throughout the Federal government. But 
as we undergo this process, we remain mindful that we must proceed deliberately, and 
that many factors can affect our structural reshaping. We cannot act in haste, or base 
changes on questionable, unproven, or contested advice. Nor can we overlook the 
potential impact of imminent changes in Agency leadership under the new 
Administration. In fact, I must adhere to the transition guidance against making major 
changes before new leadership comes aboard. We are also mindful of potential 
changes in mission. This Agency has contributed to America's preparedness for 53 
years. We expect that this vital role will continue. Obviously, the direction and 
resources we are given will affect greatly the structure we devise for ourselves. 



The status of the Health Care Personnel Delivery System 

I have been pleased with the great progress we are making in several areas that 
are of special interest to Congress. In 1988, Congress directed the Selective Service 
System to come up with a blueprint for the possible drafting of health care professionals 
in an emergency scenario. All the elements required to implement this plan are now in 
place: automated programs, standby draft legislation, a standby Presidential 
Proclamation, standby regulations, prototype forms, computer-generated documents and 
other materials. The plan includes details of a new occupational deferment for health 
care personnel based on the needs of their community. 



Within the past couple of months, the Agency has briefed the American Medical 
Association, the American Nurses' Association, and others. Additionally, the concept 
has recently been printed in the Federal Register to ensure widespread public notice 
and the opportunity to comment. While we consider this emergency examination and 
induction system complete, there is no doubt that suggestions and opportunities will 
arise through this process and others to make it even better. 

We are especially pleased to note for the subcommittee that this Congressionally- 
mandated project was accomplished without using any additional resources. 



Improving inner dty compliance 

Another area in which the subcommittee previously expressed interest is the 
Agency's ability to improve the registration compliance of young men in the inner cities. 
Given the nature and value to minority youth of Federal benefits linked to the registration 
requirement-Federal student loans, job training and Federal jobs-reaching this audience 
is essential. Our Office of Public Affairs is now conducting a series of new initiatives 
designed to reach and motivate the young, inner city male population. They form a 
multifaceted awareness program, founded on careful analysis of a hard-to-reach target 
audience. 

First, they reviewed available marketing studies to learn what other "advertisers" 
have found out about motivating young Black, Hispanic, and Asian American men in the 
inner cities. Next, they conducted 1 2 separate group discussions with young inner city 
males and older people who influence them. Finally, they had 888 in-depth interviews 
with minority men in eight cities on the East and West Coasts to determine their level of 
knowledge about the Selective Service registration requirement and to learn how best 
to deliver registration reminder messages to them. 

There were several significant findings to this research. 

1. Low registration compliance is due to limited knowledge about the 
requirement. 

2. There is low appreciation of the importance of registration. Daily survival 
is foremost on their minds. 

3. The limited knowledge and low appreciation is due to lack of access. The 
men are difficult to reach for any marketer. They are often on their own, 
not tied to family, institution, or church. They "dropped out" and just 
"hang." 



10 



4. Outdoor and transit advertising reaches thenn, but cannot convey nnuch 
information. 

5. Advertisers must use both traditional (radio, TV, print) and non-traditional 
means of getting the message out. Unique methods for this audience may 
be providing materials through community centers, churches, and social 
service organizations. 

6. Mothers play a more important role as influencers for minority men, more 
so than in mainstream young male groups. 

7. Most men feel they have a future and want their options kept open. They 
need to learn how registration personally benefits them in some way. 

Based on these factors a five-part test program was developed for Fiscal Year 93 
to test market to this "niche audience" the message that young men who turn 18 must 
register. Five cities in the northeast were selected: Boston, New York, Philadelphia. 
Baltimore, and Washington. 

The test program consists of the following elements: 

1. A local radio personality in each city, with the highest rating with this age 
group, will be asked to do a Public Service Announcement (PSA) about 
registration. 

2. Reminder registration message color slides were placed in movie theaters 
in the inner cities and nearby suburban malls. 

3. Outdoor billboards carrying public service messages were posted in urban 
locations. 

4. Public service messages were posted on busses with inner city routes. 

5. A special awareness kit, now being mailed to youth center directors, 
churches, court facilities and community leaders. Each kit contains a letter 
of explanation and encourages local support. There are also posters, 
question and answer sheets, booklets in English and Spanish written in 
simplified language, mail-back registration cards, and a business reply 
card to request more materials. 

Community leaders are being contacted in selected inner city zip codes of the five 
test cities and sent informational materials about Selective Service. Billboards and bus 
transit cards have already appeared, and Selective Service officials are visiting several 
radio talk shows, including WPGC in Washington, to explain the registration program. 

8 



11 



If the pilot campaigns prove successful in the test cities, we plan to expand its elements 
to major cities throughout the country. 

We are also continuing our mainstream public awareness campaign to ensure 
compliance statistics remain high, nationally. The on-going campaign consists of several 
elements: 

1 An awareness kit is mailed to high school principals requesting they bring 
it to the attention of the young men. 

2. A TV PSA in English and Spanish is sent to TV stations, networks, and 
cable operators. 

3. Radio PSAs in English and Spanish are sent to more than 7,000 radio 
stations. 

4. A theater slide program is shown in some 60 cities during periods of high 
movie attendance, such as during the summer months and school holiday 
breaks. 



New training material for board members 

Technically, the Selective Service System continues to excel. Our grass roots 
team of 1 1 ,000 volunteer Board Members receives annual training through a variety of 
low-cost and yet technologically innovative ways. In 1992, for the first time, they 
received an audio training tape, simulating important points in adjudicating registrant 
claims. This tape was made with the cooperation of the U.S. Air Force, which provided 
the "free" use of its audio recording equipment at the Pentagon. During Fiscal Year 
1993, because of the many requests for video training tapes, this, too, will become a 
reality. With the Selective Service staff serving as the "producers," and aspiring actors 
and actresses from local area high schools, and once again, the logistical support of 
the Air Force, this project is being completed for essentially the base cost of buying the 
blank video cassettes. 



A role in National Service? 

One last subject I would like to bring up before this subcommittee is one that has 
been receiving a great deal of attention-National Service. This concept, which has been 
mentioned periodically during the past few years, is now being launched by the 
Administration. Members of the transition team have asked us how our Agency expertise 
might play a role in assisting the national service planning team. 



12 



Historically, of course, we are the agency that has run the alternative service 
program for conscientious objectors during World Wars I and II, and the Korean and 
Vietnam conflicts. We placed men in community service jobs as an alternative to military 
service. 

I told the transition team that we possess expertise which may be helpful during 
the National Service planning process and, if called upon, we would be happy to assist 
in this important new endeavor, provided it did not detract from our basic national 
defense mission. 

Mr. Chairman, this completes my written statement. 



10 



13 

Opening Remarks 

Mr. Gambino. Thank you, sir. 

It is, indeed, a pleasure to meet with you, Mr. Chairman and the 
other distinguished Members of this subcommittee and to discuss 
with you matters concerning the Selective Service System. 

I have served at the Agency for a little over two years now, and I 
am pleased to report that it continues to perform its important 
mission successfully while its employees remain good stewards of 
the taxpayers' money. Almost every year, as a result of innovative 
initiatives by members of our staff, we have managed to exact a 
financial savings. We have operated effectively and even assumed 
new functions with budget increases limited to mandated additions 
for salaries and inflation. 

This, Mr. Chairman, is a tribute not only to our professional 
managers but to a wide spectrum of employees across the Agency. I 
believe this record of financial responsibility is rarely matched 
within the Federal establishment. 

SSS — AN IMPORTANT PART OF NATIONAL DEFENSE 

Because the Cold War is over, many are saying, "We don't need 
the Selective Service anymore." But most Americans are not so 
short-sighted. In fact, last year when an amendment came up on 
the House Floor to eliminate the funding of the Selective Service 
System, it was soundly rejected by a nonpartisan vote of 310 to 96. 

Perhaps the world is safer today. Then again, more nations have 
or are acquiring nuclear bomb capability; and tensions still exist in 
the Middle East and the Persian Gulf. Plus, the very break-up of 
the Soviet Bloc, which we all so recently applauded, is producing 
uncertainties and conflicts. Russia itself teeters on the brink of gov- 
ernmental paralysis or worse. As President Clinton said in his 
State of the Union message, and I quote, "This is still a dangerous 
and uncertain time." We must "be prepared to lead a world chal- 
lenged by ethnic conflict and by the proliferation of weapons of 
mass destruction," end of quote. 

We, as Americans, tend to be trusting and optimistic about the 
future. But our memories must not become so short term that we 
jeopardize our national security. Simply put. Selective Service is a 
very inexpensive defense, manpower, insurance policy. This is espe- 
cially true at a time when we are downsizing both our active and 
reserve forces at unprecedented rates. 

Perhaps more than ever, we need to have this inexpensive back- 
up system in the case of a national emergency or other circum- 
stances which may require an addition to our voluntary forces. 
And despite our intelligence resources, history tells us that the 
plain truth is that no one possesses a crystal ball, especially when 
it comes to human nature and unstable governments. 

The Selective Service System continues to perform a vital mis- 
sion with an annual budget that is smaller today, in real dollars, 
than it was 10 years ago. But we are well aware of the need for 
even greater belt tightening and improved efficiency. We are doing 
our part, I believe. 



14 



STREAMLINING THE AGENCY 



Over the past years, we have been implementing a plan to 
streamline the Agency even further. Earlier, we made improve- 
ments in the Agency's reserve structure which was completed in 
1992; but we have not stopped there. Now we are engaged in an 
ambitious project to examine and realign our full-time civilian em- 
ployee structure. We are in the final stage of that plan. We want to 
do our share to help reduce the Federal deficit. 

One tool we chose to employ in the evaluation process was to 
contract with an outside organization to conduct a manpower and 
structure survey. Its report presented many constructive ideas; but, 
unfortunately, it also contained some serious flaws in rationale and 
several off-target recommendations. But the report contains many 
good suggestions, and these are being integrated with the overall 
restructuring program. 

Those recommendations that make sense and need no further 
evaluation have been implemented or will be implemented as soon 
as possible. But as we undergo this process, we must remain mind- 
ful that we must proceed deliberately, and that many factors affect 
our reshaping. We cannot act in haste or base changes on question- 
able, unproven suggestions. Nor can we overlook the potential of 
impact imminent changes in Agency leadership under the new ad- 
ministration. 

I am a holdover from the Bush Administration, and I expect re- 
placement any time in the near future. In fact, I am adhering to 
the transition guidance I was given against making major changes 
before new leadership comes aboard. 

We are also mindful of potential changes in mission. This Agency 
has contributed to America's preparedness for over half a century. 
We expect its vital role will continue. But we are prepared to make 
any necessary adjustments to structure in response to change. 

IMPROVING INNER CITY REGISTRATION COMPLIANCE 

Another area in which the committee previously expressed inter- 
est is the Agency's ability to reach young men in the inner-cities. 
Given the Federal benefits linked to the registration requirement — 
Federal student loans, job training, and Federal jobs — reaching this 
audience is essential. This year, we are trying new approaches to 
reach this hard-to-reach audience. As a pilot program, community 
leaders are being contacted in selected inner-city ZIP codes of five 
northeastern cities — Washington, Baltimore, Philadelphia, New 
York, and Boston — and sent informational materials on the Selec- 
tive Service. This effort also involves public service announcements 
and messages on radio stations in English and Spanish, postings on 
busses travelling inner-city routes and billboards. 

And here is a photograph of one of the billboards we had placed 
in Baltimore. 

These outreach efforts are just now underway, and we have high 
hopes for their effectiveness. 

NATIONAL SERVICE 

I have provided more detail about many of the Agency's pro- 
grams in my written testimony, but one final subject I would like 



15 

to mention is one that has been receiving a great deal of attention; 
and that is National Service. Members of the transition team asked 
me about the Agency's capabilities in this connection, and I advised 
them that we do possess a lot of the expertise which I thought may 
be helpful in the National Service planning process and that, of 
course, we would be very happy to make it available at their re- 
quest if we could do so without disrupting our mission readiness. 
Mr. Chairman, this concludes my opening remarks. I would be 
happy to answer any of the committee's questions. 

DELIVERY OF REGISTRANTS WITHOUT PRIOR REGISTRATION 

Mr. Stokes. Thank you. We will open with general questions. 

Last year Selective Service stated for the record that it would 
take about six months to produce 100,000 inductees, assuming no 
pre-mobilization registration. Just quoting from the record, it said, 
"Absent the six month preparation time, only between 60 and 70 
percent of the registration eligible group would actually register on 
time. Consequently, those able to avoid registration would substan- 
tially increase the vulnerability of those responding to the call." 

Do you still believe it would take six months to register young 
men if there were no registration prior to mobilization? 

Mr. Gambino. Sir, we have to be careful when you say "no 
registration." No peacetime registration means one thing. When we 
say deep standby, it means something else. If peacetime registration 
was discontinued, I think the best case is that it would take about 42 
days to make the first deliveries to DOD. However, if we had to come 
from deep standby, we are then talking about the six months that 
you mentioned. 

DELIVERY OF HEALTH CARE PERSONNEL 

Mr. Stokes. Selective Service has developed information systems 
and forms capable of registering medical personnel after mobiliza- 
tion. On page 8 of your justification, it states that SSS would be 
able to make the first deliveries to DOD of health care personnel 
42 days after mobilization. 

Since health care specialists would not have been registered 
before mobilization, tell us why it doesn't take the same six months 
to induct them that it would take to induct 18 year olds. 

Mr. Gambino. Sir, deliveries in 42 days assume the existence of 
our present structure. Our present structure provides us with the 
resources that would enable us to make deliveries in that time 
frame. But if we were coming from deep standby, it would take 
much longer. Today we are set up. We are almost at full strength 
and our systems are developed and in place. Therefore, we can 
produce health care personnel in 42 days without peacetime regis- 
tration. 

Mr. Stokes. Okay. The Assistant Secretary of Defense for Health 
Affairs, William Mayer stated on September 19th, 1986, before the 
House Armed Services Committee: "We have a shortfall of about 
7,800 physicians and 32,800 nurses needed to meet all the wartime 
requirements for our forces upon full mobilization." 

To the best of your knowledge, would there still be a health care 
shortage in the event of mobilization? 



16 

Mr. Gambino. Sir, I think that I am really unable to answer that 
question. I would have to go to the DOD for the answers regarding 
their needs. We would be able to supply, with the system that we 
have now, just about any number they would want within reason. 
But you would have to go to them, I think, to find out exactly what 
their requirements are. 

Mr. Stokes. I guess our concern, and the thing that we were 
trying to get at, was the fact that we register 18 year olds, yet we 
could not register doctors, nurses, or health care personnel; and at 
the same time, in the event of mobilization, both would be needed. 

Mr. Gambino. Yes, sir, that is true. Under our present structure, 
with peacetime registration, we could provide the DOD with regis- 
trants within 10 days after their receipt of the induction notice. 
But that is because we have peacetime registration of 18 year olds. 
However, because health care personnel are not registered, we 
would have to go through a mass registration upon mobilization, 
sort of starting from scratch. What the Congress asked us to do in 
health care, we have done, sir. We have a program on the shelf 
ready to go if DOD requests medical personnel. But that program is 
not in the same readiness state as is our ability to conduct a con- 
ventional draft because of peacetime registration. 

Mr. Stokes. So you mentioned 10 days. You are saying it didn't 
take the 42 days? 

Mr. Gambino. No, sir. With peacetime registration, we could de- 
liver the first person to the MEPS within 10 days after receipt of 
the inducation notice. 

Mr. Stokes. Now, we are talking about the health care person- 
nel. 

Mr. Gambino. Yes, sir. 

Mr. Stokes. And in the event of a mobilization, doesn't it take 42 
days to get the first ones into the system? 

Mr. Gambino. Yes, sir. 

Mr. Stokes. And the 10 days is not related to getting them into 
the system? What is the 10-day period? 

Mr. Gambino. Sir. The 10-days refers to the delivery time for a 
regular registrant, after he has received his induction notice. With 
the three day allowance to deliver that notice, the first deliveries 
to DoD would occur at M + 13 days. 

Mr. Stokes. And that is due to lack of registration of health care 
personnel? 

Mr. Gambino. Yes, sir. 

DOD-SSS report ON THE REGISTRATION REQUIREMENT 

Mr. Stokes. Section 547 of the Department of Defense Authoriza- 
tion Act, P.L. 102-484, requires the Secretary of Defense, in consul- 
tation with the Director of the Selective Service System, to prepare 
a report regarding the continued requirement for registration 
under the Selective Service System to: "Prepare a report regarding 
the continued requirement for registration under the Selective 
Service System. The report shall contain, at a minimum, analyses 
on the affect of suspension of requirement for registration on pro- 
jected mobilization requirements, recruiting in the armed forces, 
and the organization and staffing of the Selective Service System." 



17 

The law requires that this report be submitted to Congress no 
later than May 31, 1993, together with the actions the President 
proposes to take with respect to this report. 

Do you expect the report to be ready by May 31? 

Mr. Gambino. Yes, sir, I do. 

Mr. Stokes. Have you, as Director of Selective Service, been con- 
sulted in preparing this report? 

Mr. Gambino. Yes, sir. 

DOD QUESTIONS FOR THE RECORD 

Mr. Stokes. Although the committee invited a representative of 
the Department of Defense to testify at this hearing, the Depart- 
ment declined to send a representative. As a result, at this time, I 
want to submit, at this point in the record, questions for Depart- 
ment of Defense to reply to. 

[The information follows:] 



18 



Question: The Selective Service System plans to 
deliver 100,000 draftees in less than 30 days. Mr. 
DeFazio, in a House floor debate on July 29, 1992, 
stated: 

"Finding conscripts will not be the choke point, 
if we ever again have a national mobilization 
emergency. training capacity is. . .At the end of 
the gulf war, 6 months after mobilization, there were 
still thousands of reservists waiting for training 
slots. Conscripts would be even months behind them." 

Is the reference to the Gulf War factually 
correct? 

How long after mobilization would it take the DoD 
to create the training and other facilities necessary 
to utilize 100,000 draftees? 

Answer: The reference to the Gulf War is 
correct; however, the training backlog was not due to 
training base capacity. In FY 1991, nearly 80,000 
Army Reserve and Army National Guard recruits were 
trained; a similar number were trained in FY 1992. 
Clearly, at any point in time, during FY 1991, several 
thousand persons were waiting to enter recruit 
training; otherwise, the training base throughout 
would not move smoothly. 

The DoD does not intend to utilize draftees 
unless it becomes necessary to reconstitute our forces 
to a level sufficient to deal with a global war. 
Under these circumstances, new or expanded training 
bases would be reconstituted prior to mobilization. 
We then could accept new draftee/recruits immediately 
upon mobilization. 



19 



Question: The Committee understands that the 
contingency plans created by the Department of Defense 
assume an all volunteer force. 

Is this correct? 

Can you give the Committee an idea of the 
magnitude of the military crisis that could not be 
handled by a volunteer force, making conscription 
necessary? 

Answer: The Department is in the process of 
conducting a bottom-up review which will include 
topics addressed in this question. The review will be 
completed this summer. 



20 



Question: What are the latest estimates of the 
shortfall in health care personnel that would occur in 
the case of a major conflict? 

At what magnitude of conflict might the 
Department require conscripts of health care 
personnel? 

Would this be a lesser magnitude conflict than 
would require general conscripts? 

Answer: Section 733 of the National Defense 
Authorization Act for Fiscal Year 1992 and 1993 
directed the Comprehensive Study of the Military- 
Health Care System. The Study, which is underway, 
includes a complete' analysis of the requirements for 
health care personnel to support the war- fighting 
mission. The report, which is due to Congress in 
December 1993, will include information on 
requirements for both active duty and reserve 
personnel . 



21 



QUESTION: During Desert Storm, did any occupational shortfalls 
become apparent in medical skills? 

ANSWER: The medical force deployed for OPERATION DESERT STORM 
was adequately staffed to support that conflict, as it 
developed. The Department was able to fully meet the medical 
support requirements developed by the Commander in Chief, U.S. 
Central Command (CINC CENTCOM). 

There were instances of skill mismatches in medical units. 
But with adaptation and flexible planning, the required skills 
were assigned to deploying units; and medical support in the 
Theater was not adversely impacted. 

QUESTION: If the war had continued, would there have been a 
need to conscript health care personnel? 

ANSWER: The CINC had established the medical support requirements 
based on a protracted conflict, and the Department met those 
requirements. Therefore, DoD could have provided medical care 
for a protracted conflict. 



22 



Question: Please describe the steps taken before 
the Second World War to prepare for the draft. How 
long after mobilization did it take to deliver 100,000 
inductees? 

Answer: Prior to the United States' entry into 
World War II, our first peacetime draft was 
established on September 16, 1940. Known as the 
"Selective Training and Service Act," it was strictly 
a peacetime measure which stipulated that inducted men 
should serve and be trained for a period of 12 months 
or less, and that not more than 900,000 men were to be 
in training at one time. Men between the ages of 21 
and 35 were registered in October, and inductions 
began in November 1940. It took a little over two 
months for the system to deliver the first 100,000 
inductees to Army reception centers. There were 
91,439 inductions from November 18, 1949 through 
January 31, 1941 and an additional 90,233 during 
February 1941. 

Preparations for the draft focused on the 
development of reception and training centers. 
Twenty-nine reception centers were established 
throughout the United States for initial inductee 
processing, which took approximately four days. Since 
there were no training centers in operation when the 
draft began, inductees went directly to regular Army 
and National Guard units which were being increased to 
wartime strength. By June 1941, there were 21 
training centers giving 13 weeks of basic training to 
inductees so that combat units could conduct unit 
training unburdened by having to provide basic 
training. After one year of active duty, inductees 
were subject to 10 year's service in the Reserve 
components. By the time the United States entered 
World War II in December 1941, inductions under the 
peacetime system totaled approximately 950,000. 



23 

Mr. Stokes. Let me go into a couple of specific questions with 
you, Mr. Gambino. 

I understand that under — I'm sorry. 

Mr. Thornton? 

Mr. Thornton. Yes, sir. 

Mr. Stokes. I would yield to you for any general questions. 

Mr. Thornton. Mr. Chairman I appreciate this hearing, and I 
have no questions at this time. 

Mr. Stokes. Thank you. 

Mr. Thornton. Thank you. 

deep standby 

Mr. Stokes. We will now go into some specific questions. 

I understand that under "deep standby," all registration, compli- 
ance, and public awareness activity would cease and the only ac- 
tivities that would continue would be maintenance of the Agency's 
computer equipment and mobilization training. 

Is that correct? 

Mr. Gambino. Well, sir. We would also have to maintain and 
train our full complement of 745 Reserve Force Officers. 

Also, we need the staff at headquarters for planning purposes to 
ensure that these people were trained. However, if we are talking 
about the loss of registration only, there are a number of other 
things that I think we would have to plan for. 

Almost one-third of the States have programs which encourage 
registration. These programs are set up to prohibit certain benefits 
unless the person in that State registers with Selective Service. We 
are constantly contacted by representatives of those States, as well 
as the Federal sector, to determine eligibility for those programs. 

Registration is required for certain Federal benefits because of 
the so-called Thurman and Solomon Amendments. Therefore, we 
would have to maintain some staff at the data management center 
to handle the inquiries coming in from those folks also. 

We would not close down the data management center if only 
registration stopped. We would need to keep the database current 
and a sufficient number of people there to provide, not only to the 
public, but also to the Federal Agencies, registrant information. It 
is a little more complicated than it looks on the surface, I believe, 
sir. 

savings related to deep standby 

Mr. Stokes. I understand that the cost in fiscal year 1993 to 
place the Agency in deep standby would be about $11.2 million. 

Would you agree with that estimate? 

Mr. Gambino. Is that 

Mr. Stokes. We are talking about the total. 

Mr. Banister. Sir, if I may? I have the numbers handy. We pro- 
vided your staff with an earlier estimate of potential savings of 
$11.2 million should the Agency return to deep standby. However, 
we noticed recently that there was a slight miscalculation and the 
estimated amount is now $10.7 million that we would save. And we 
would lose 162 FTEs from the planning figure of 268 FTEs. We 
would need 106 FTEs to operate in deep standby. 



24 

Mr. Gambino. Deep standby we are talking about? 

Mr. Banister. That would be the reduction, the reduction from 
the current level. 

Mr. Gambino. $10.7 million. 

Mr. Banister. That would be the amount saved by the elimina- 
tion of the registration program, the compliance program, the reg- 
istration improvement program, the data management center, as 
well as our board member program. 

This would place the Agency in a posture similar to the deep 
standby of 1978. 

Mr. Gambino. I think that I should add that if we were put in 
that position it would take a minimum of six months to deliver the 
first draftee to the DoD and it would take much longer for such a 
draft to be fair and equitable. 

Mr. Stokes. On that point let me ask you this; If I recall correct- 
ly, around 1977, 1978, when you were in that position, we are talk- 
ing about $7 million, approximately. 

Now for the same situation we are talking about $18 million. Is 
that correct? 

Mr. Gambino. Yes, sir. But it is like comparing apples and or- 
anges. The system has changed over the years because we are de- 
pendent on computers; and if we started from scratch, even in deep 
standby, we would need people trained on our computer systems. 
We would also have to have equipment that we didn't have back 
then and keep it maintained. 

Mr. Brodsky. Plus costs have escalated in that number of years; 
inflation. 

Mr. Stokes. What I think would be helpful to us is if you would 
provide for the record what the differences are in terms of the $7 or 
$8 million dollars that we were talking at that time and the $18 
million now; what accounts for the differential. 

Mr. Gambino. Certainly, we will be happy to. 

Mr. Stokes. Other than inflation. 

Mr. Gambino. Other than inflation, all right. 

[The information follows:] 

"Deep Standby" Differential 

The differential of what "Deep Standby" cost in 1978, and what it would cost now, 
other than inflation, is due to the addition of 28 FTEs, the increase in the cost of 
personnel benefits, and the cost of military pension accrual which the Selective 
Service System (SSS) now pays. 

Of the 28 additional FTEs, approximately eight are for State Directors which were 
not funded in FY 1978 and an additional regional office. The other 20 FTEs are for 
systems support. Additional systems support personnel are needed because the auto- 
mated systems of SSS have grown from a few, such as payroll, personnel, and re- 
serve force programs, to over 30 which consist of hundreds of software modules. 
Today's method to process inductees is radically different from the Agency's capabil- 
ity in FY 1978, SSS now has a centrally managed system which is ADP dependent. 
Consequently, these support personnel are required in peacetime to maintain, en- 
hance and exercise these mobilization readiness systems. Examples of these addi- 
tional automated systems are: Registrant Information and Management System 
(RIMS), Integrated Mobilization Information System (IMIS), Drill Pay Accounting 
subsystems. Health Care Personnel Delivery Systems (HCPDS), Mobilization Train- 
ing Statistical System (MTSS), Computer Aided Training and Operations (CATO), 
and the Alternative Service Program System (ASPS). 

The increase from $6.6 million in FY 1978 to the estimated annual requirement of 
$17.9 million (in FY 1993 dollars) for "Deep Standby" is $11.3 million. Of that 



25 

amount $8.4 million is due to inflation based on the Consumer Price Index. The fol- 
lowing accounts for the remaining difference of $2.9 million: 

Additional 28 FTEs and related costs — $1.1 million. 

Military pension accrual (not paid in FY 1978) — $1 million. 

Increase in the cost of personnel benefits (FERS, health, etc.) — $0.6 million. 

An additional Region (operating cost excluding personnel) — $0.2 million. 

Mr. Stokes. Also if you would provide for the record a descrip- 
tion of deep standby and an estimate of the costs to place the 
Agency in such a state for fiscal year 1994. 

[The information follows:] 

FY 1994 "Deep Standby" 

"Deep Standby" is a state in which the Agency exists but only at a caretaker 
level. In a "Deep Standby" state, similar to that of FY 1978, the registration, com- 
pliance, registration improvement, and board member programs, as well as the Data 
Management Center located in Illinois would be eliminated. However, reversion to 
"Deep Standby" would extend the time needed to deliver the first registrant to DOD 
from 13 days to six months or more. Moreover, the resumption of inductions from a 
"Deep Standby" posture would impact adversely the Agency's ability to conduct a 
fair and equitable draft in an emergency. The absence of a current and complete 
data base would penalize those who fulfilled their registration obligation in a timely 
manner by subjecting them to a call earlier than necessary if the data base were 
maintained as it is today. 

The additional cost to place the Selective Service System in "Deep Standby" in 
FY 1994 is estimated to be $6.9 million. This amount is above the estimated $17.9 
million annual cost of a steady state "Deep Standby" condition in FY 1993 dollars. 
In other words, Selective Service would need an FY 1994 appropriation of $24.8 mil- 
lion to revert to "Deep Standby." The additional $6.9 million includes: $2.5 million 
to cover the salaries and related costs of staff until they are off the Agency's rolls; 
$2.8 million for severance pay, unemployment compensation, and lump sum leave 
payments; $700,000 to cover the costs associated with the deliberate shutdown of the 
Data Management Center; $300,000 for inflation and the annualization of the FY 
1993 pay raises; and $600,000 to continue the board member program in "Deep 
Standby." 

The Agency recommends strongly the continuation of the volunteer board 
member program in "Deep Standby." There are approximately 11,000 board mem- 
bers located throughout the United States and its territories. Each board member is 
nominated by the Governor of the State and appointed by the President. The costs 
associated with the appointment and initial training of these board members have 
been incurred and are "sunk" costs. It is estimated that an additional $600,000 
would be needed annually to continue this program in "Deep Standby": $300,000 for 
annual training and $300,000 for seven FTEs to administer the program. 

In the event of "Deep Standby", Selective Service would request that the Office of 
Personnel Management authorizes early voluntary retirements for Agency person- 
nel. The impact of this program cannot be determined at this time. 

EXAMINATION OF CIVILIAN STRUCTURE 

Mr. Stokes. Mr. Gambino, in your opening statement, you tell us 
you are currently engaged in a full examination of your civilian 
employment structure. 

What is your timetable for completing the examination and im- 
plementing its recommendations? 

Mr. Gambino. I don't have a finite time schedule, but certainly 
before the end of the calendar year we hope to complete the pro- 
gram. 

Mr. Stokes. You also commented that you, "must adhere to the 
transition guidance against making major changes before new lead- 
ership comes aboard." 

Won't this inhibit any planned reorganization? 

Mr. Gambino. No, sir. I am certainly going ahead with the plan- 
ning. And once that planning is completed, if we don't have new 



26 

leadership before then, we will make efforts to present them with 
that planning. And they may give me the opportunity to go ahead 
or tell me to hold back. 

Mr. Stokes. Have you been notified as to when this new leader- 
ship may be aboard? 

Mr. Gambino. No, sir, I have not. 

URBAN AREA REGISTRATION INITIATIVE 

Mr. Stokes. You describe in your testimony the Urban Area Reg- 
istration initiative designed to increase inner-city minority youth 
registration through radio, TV advertisement, billboards, and social 
service groups. 

How much will this initiative cost in fiscal year 1993? 

Mr. Gambino. About $80,000. 

Mr. Stokes. And what will be the value of the public service an- 
nouncement air time that you expect to use? 

Mr. Gambino. Sir, the air time is free. The money goes toward 
producing tapes, scripts, posters and billboards, among other 
things. 

Mr. Stokes. Can I see that a moment. 

Mr. Gambino. And we also produce publicity kits that we are 
sending to leaders within the inner-city who are working with this 
very difficult target audience of young men in the inner-cities. We 
just didn't do this haphazardly, sir. We conducted focus groups to 
try to determine what really motivates the young men in the 
inner-city. 

The publicity materials are an outgrowth of those focus groups 
which were done in a very professional way. We believe we have, 
as I indicated last year, a societal obligation to spend money at the 
margin to get registrations within the inner cities because the 
young men in these areas might need the benefits which are tied to 
registration. They would be denied these benefits if they did not 
register. 

Mr. Stokes. In terms of this advertisement here, these that you 
are showing us here, did you utilize minority public relations firms 
for the development of these pieces? 

Mr. Gambino. We didn't use a minority public relations firm. 
But we certainly used minority groups in our focus group efforts to 
see whether or not this kind of thing would motivate the young 
people. 

Let me ask my Assistant Director for Public Affairs who ran this 
program. 

Mr. Brodsky. We use a small advertising firm in the Washington 
area. And we made a very conscious effort to speak to 888 minority 
young men around the country. 

We also conducted 12 focus groups with minority men around 
the country in various cities to test, if you will, these concepts. And 
what we actually produced was public service advertising based on 
our findings. The research guided us in producing materials that 
will get the message across to young black, Hispanic, and Asian 
men in the inner-cities. The idea behind that particular poster 
tested extremely well. It first received attention as a movie theater 
slide on inner city and nearby suburban screens. It was shown 



27 

before the main picture went on and it proved to be very popular 
and very effective. 

In response to your earlier question, Mr. Chairman, about the 
value of television public service time that we get for the minimum 
amount of production monies that we commit, we don't have any 
hard numbers on that. Because public service being what it is, we 
have to depend on the broadcaster playing it in a block of time 
that is not sold; and that could be prime time or 3 o'clock in the 
morning. 

But our estimates are that we receive back many times the value 
of what we actually invest in production. The value of time that we 
receive for free far exceeds what we spend for the materials. 

THE USE OF MINORITIES IN URBAN AREA INITIATIVE 

Mr. Stokes. Let me go back for a moment to my original ques- 
tion to you. If I understand you correctly, what you did in terms of 
minority participation was, you used minorities to talk with white 
public relation firms. You didn't use minority public relation 
firms? 

Mr. Brodsky. No, sir. Our moderators at these sessions were 
black and Hispanic, and we conducted interviews with African 
American and Hispanic young men nationwide using a variety of 
personnel. 

It was not a case of Caucasian people talking to black people. 
Mostly blacks spoke with blacks and Hispanics with Hispanics. 

Mr. Stokes. Let's go back again, then. The persons whom you 
hired to do the actual public relations work were white public rela- 
tions firms, were they not? 

Mr. Brodsky. White owned, yes, sir, but 16 percent of its employ- 
ees are minorities. 

Mr. Banister. Excuse me, sir. This was a multi-year contract 
that was awarded a number of years ago, I believe four or five 
years ago. And we are in our last year of that contract. We have 
only used one firm in the last five or more years. 

Mr. Brodsky. There was no separate contract awarded for this. 
We were using our existing contract with a firm that does all the 
public affairs awareness advertising for Selective Service. 

Mr. Stokes. But, see, you are in the defensive mode. And I was 
just trying to get information. 

Mr. Brodsky. Sure, sir. 

Mr. Stokes. First, what you have done is you have used the same 
white firm that you have used for everything else to do this specifi- 
cally targeted project as it related to inner-city, predominantly 
black youth. 

Mr. Brodsky. Yes. 

Mr. Stokes. And even though they went out and hired some 
blacks and Hispanics in terms of their sitting there and doing the 
interrogation of these youth, it was the firm itself that made the 
analysis and that type of thing as a result of the work that was 
done; is that correct? 

Mr. Brodsky. Yes. 

Mr. Gambino. Yes. 



28 

Mr. Stokes. The reason I asked you these questions is because I 
am not sure that what you are showing me here — I take the same 
kind of pride as an African American that you take in the display 
of it here. I am not so sure that this appeals to black youth in the 
inner-city. 

Mr. Gambino. Sir, every one of these projects had to pass a 
litmus test. They had to reflect what was learned in the inner city 
research. 

Once developed under the contract, with input that we had from 
focus groups and so forth, creative decisions were made based on 
the research, and others provided feedback on whether or not this 
was something that would motivate inner-city young men to regis- 
ter. 

REVIEW OF THE PUBLICITY MATERIALS 

Mr. Stokes. Was it presented to the NAACP? 

Mr. Gambino. No, sir. Well, again 

Mr. Brodsky. No, sir. It was presented to the target audience; 
the audience that it was intended to motivate and the creative ma- 
terials were developed in coordination with minority employees in 
the Agency. 

Mr. Stokes. Was it presented to any organization such as the 
Urban League? 

Mr. Brodsky. No, sir, it was not presented to any organizations 
whatsoever. It was strictly addressed to the 18-year-old, black, His- 
panic, and Asian male and their influencers: the parents, teachers, 
guidance counselors; those who were included in the test market 
group. 

Mr. Gambino. And many of them said they were not motivated 
by some of the concepts; they turned them off. And those that 
didn't make the grade weren't considered. Concepts that appealed 
and were relevant to the inner city men were produced. 

Mr. Stokes. When did you put it into effect? 

Mr. Brodsky. The publicity kit campaign is starting now, sir. 

Mr. Stokes. Starting now? 

Mr. Brodsky. Yes. The movie theatre slide was run in February. 
The distribution of the inner-city kits is about to start right now. 

And the billboards have been running since January in Balti- 
more and Washington on a test market basis. 

I think that should be emphasized, Mr. Chairman. This is a test 
to see whether or not there is effectiveness in these materials in a 
smaller area of the country before we consider breaking out such a 
program nationally. 

Mr. Stokes. Just for the record, I just want to show that it didn't 
pass the test here with me. The utilization of the words "Mo 
money. Mo money. Mo money," in the first place, I know plenty of 
black youth that don't speak like that. They use perfect English 
and say "more money." There is nothing appealing about black 
youth walking along the street. 

Mr. Gambino. The photograph of that billboard was taken when 
a black youth just happened to walk by. The billboard is what we 
wanted to show you. The black youth just happened to be there 
when the picture was taken. 



29 

Mr. Stokes. Still, that doesn't do it for me. 

Mr. Gambino. Sir, Freida Brockington, who is head of our regis- 
tration program. Freida, do you have any comments that you 
would like to add? 

Mr. Stokes. We welcome any comments that you would like to 
make. 

Ms. Brockington. As the Director indicated, it is a pilot pro- 
gram which we are testing in Region I right now. My office has 
oversight of the registration aspects but not the public awareness 
portion of the program. However, I attended the inner city focus 
groups and acquired some good insight which we used to develop 
our packet. 

In that capacity, we included in this packet a registration form 
that was coded to see what kind of success would result from the 
program. This will help us evaluate whether this is something that 
is going to be successful in the inner-city or not. 

And my office will be monitoring the success of the pilot very 
closely to see whether it actually generates the awareness and reg- 
istrations that we think that it is going to. My office will be watch- 
ing the results very closely. 

Mr. Stokes. Let me just ask you this: As an African American, 
does it seem logical to you that a minority public relations firm 
might be able to relate much better to this type of a project in the 
African American or Hispanic community than a white-oriented 
public relations firm? 

Ms. Brockington. Certainly a minority firm would certainly be 
more sensitive to minority issues. I would have to say, yes. 

Mr. Lewis. Which I believe is the Chairman's point. 

Mr. Stokes. That is exactly what I was trying to say. 

Mr. Gambino. I got the point. Yes. 

Mr. Stokes. I yield to Mr. Lewis now for any questions that you 
may have. 

Mr. Lewis. Thank you, Mr. Chairman. 

Mr. Chairman, if I could. I am going to submit some questions 
for the record. I will ask one here, but I think you know that I 
have this minor, little problem and I am going to run on. There is 
a doctor that is going to fool with my back for a while. I hope that 
you will excuse me. 

Mr. Stokes. Certainly, we understand. And hope you feel better. 

[The information follows:] 



30 



Congressman Jerry Lewis 

Motivating Inner-city Youth 

Question: What is the message or motivation that you are trying 
to communicate to these inner-city youth? Have you found a new 
way to challenge them to accept the possibility of a more 
positive future? 

Answer: The message about complying with the registration 
requirement is not new. What is different about the inner-city 
initiative is the fact that Selective Service first surveyed 
young African American, Hispanic, and Asian men in low compliance 
areas to determine what aspects of the message are most 
meaningful to them, what their sources of information are, and 
how to communicate the requirement in terms they find relevant 
and easy to understand. The survey indicated that registration 
must be perceived as personally benefiting inner-city youth. The 
fact that failure to register is a violation of law is not 
persuasive with this group. But these men, who are cynical about 
their futures and lead very difficult lives now, pay attention to 
the fact that they might lose federal job and training 
opportunities forever if they don't register. They don't want to 
close off any opportunities that might lead to income or might 
improve their social or economic status. 

From this survey, materials were developed focusing on the 
opportunities that remain open by registering (education loans, 
job training, federal jobs) . The overall inner-city campaign 
theme is implicit: "don't miss out on opportunities which are 
valuable to you personally." The creative concepts feature 
inner-city themes, use simple language, and relate to inner-city 
men in their own vernacular. They, use photography and 
typography the men will find attention-getting and relevant. 

The study shows that some traditional media works 
especially well in communicating with this group of young men, 
such as radio, bus cards, movie theater slides, and outdoor 
billboards. But non-traditional approaches must also be tried, 
such as communicating through their parents, social services 
organizations, church groups, and correctional officials. 

Compliance 

Question: Is there any basis for guesstimating what the 
compliance rate would be if we put your current proactive program 
on the self, kept the ADP records, and shifting fairly rapidly to 
a post-mobilization mass registration system? 

Answer: There is no way to guesstimate what the compliance rate 
would be if our current registration program were mothballed. 
But, what we do know is that our existing ADP records would 



31 



Congressman Jerry Lewis 

become dated in a very short period of time without some type of 
on-going maintenance. Historically, it takes about two years to 
attain a 90+ percent compliance rate. Many proactive programs 
have been put into place to ensure that the compliance rate is 
maintained at an acceptable level. Selective Service believes 
that present 98% rate is an acceptable level; it is one from 
which we could conduct a fair and equitable draft. A lower rate 
certainly would impact negatively the fairness and equity issue 
and would be of concern to every draft eligible male. 

Cost to Register Last 2% of Draft Eligible Men 

Question: How much should we be willing to spend to get that 
last 2% of draft-eligible men to register? 

Answer: It would be difficult to achieve 100% voluntary 
compliance at any practical cost. Historically we have been able 
to achieve a 98% compliance rate which we believe is very 
commendable. This rate reflects the many proactive registration 
programs Selective Service currently has in operation. However, 
even with an aggressive and expensive undertaking, it would be 
difficult to achieve 100% compliance. Therefore, it would not be 
cost beneficial for government to spend additional funding in an 
effort to reach 100% compliance. 

Consulting Services 

Question: While you are only asking for a nominal sum in FY 94 
($23,000), can you identify what the need is that you are 
serving? Is it related at all to the upgrades in your computer 
system since FY 93 or the application of Total Quality Management 
techniques? 

Answer: The Selective Service System (SSS) requested $23,000 in 
FY 1994 for consulting services. The funding was included in the 
budget to provide for a re-test of the accuracy of the SSS 
address database, if the new Director chooses. 

Relocation 

Question: Please bring me up to date on the consolidation. What 
is the final location you have chosen? Did you examine the 
options of renting, leasing to purchase, and direct sale? 

Answer: GSA is in the process of finalizing the lease for our 
new consolidated location. The building is in Rosslyn, Virginia. 
Since GSA is responsible for the acquisition of space for Federal 
agencies, it is GSA that performs an analysis of the various 
options available when new space is being sought. It is our 
understanding from GSA that when an agency requires a relatively 



67-798 O— 93 2 



32 



Congressman Jerry Lewis 

options available when new space is being sought. It is our 
understanding from GSA that when an agency requires a relatively 
small amount of space, as in the case of the Selective Service 
System's need for only 35,000 square feet, the options of direct 
purchase or leasing to purchase are not economically advantageous 
to the government. 

Relocation Expenses 

Question: Your justification says that "there are many expenses 
associated with a move of this magnitude which must be borne by 
the Agency." Can you provide me, now, or for the record, the 
total costs of the relocation? 

Answer: Although the lease procurement is now in the final 
stages of approval, we still don't have firm costs from GSA. 
Their latest estimates of costs for which the Selective Service 
System is responsible are as follows: 

• Construction of special requirements (i.e computer room, 
conference room, training room, employee lunch area, 
etc.) - approximately $125,000. 

• Wiring and installation of telephones and computer systems 
and networks - approximately $100,000. 

• Restoration of current office space and computer facility 
to its original condition - approximately $50,000. 



33 

ACTIVE AND RESERVE FORCE REDUCTIONS 

Mr. Lewis. One specific question before I leave. It struck me that 
with your background and experience both in active duty and re- 
serve assignments that you might have unique insights as to 
whether we are on the right road or not in the direction that we 
may be taking with the Selective Service System. 

I would expect that someone with responsibilities in maintaining 
a viable mobilization posture should have some opinions relative to 
this. 

Last year we reduced the active duty force structure by a little 
over 100,000, the reservists by about 40,000 positions. Those choices 
reflect the political strength of the Guard and the Reserve in con- 
gressional districts throughout the country. 

As we move to the base force, do you have an opinion regarding 
the point balance between active duty and reserve cuts? 

Mr. Gambino. Sir, I really don't think that I am enough up to 
speed on that issue to give you an answer in which I have confi- 
dence. I am not sufficiently aware of the trade-offs to answer the 
question in a way that you would want it answered. 

I will say, however, that the deeper the cuts in military forces or 
volunteer forces, both active and reserve, including the National 
Guard, the more essential it is that we maintain a viable Selective 
Service. 

Mr. Lewis. You are suggesting that since you are not dealing di- 
rectly with DOD responsibilities that there is not enough overlap 
to be able to make a professional judgment? 

Mr. Gambino. Yes, sir. 

Mr. Lewis. Someone with your background and your responses, 
you must have some 

Mr. Gambino. But the information that I have is very perishable, 
sir; and it doesn't necessarily apply today. 

Mr. Lewis. Mr. Chairman, I think I would have you return to 
your questions and please excuse me. 

Mr. Stokes. Thank you very much, Mr. Lewis. 

Mr. Thornton. 

review of inner CITY CAMPAIGN MATERIALS 

Mr. Thornton. Mr. Chairman, if I may, I would like to comment 
on questions concerning the advertisements which I truly think 
tend to be somewhat patronizing. And it would seem to me, from 
my own perspective that "Mo money. Mo money. Mo money," is 
not the kind of thing that would attract people to want to be a 
member of that organization. 

I am not African American, but I have experienced over the 
years some characterization of the people of Arkansas as being Lil 
Abner in make up. And if someone were to advertise for my par- 
ticipation by saying, "Join us in Dog Patch," I would have trouble 
with it. 

I do think that the survey should be reflected upon and perhaps 
reviewed by someone as to whether it is sensitive to 
the target audience. 

Mr. Gambino. Sir, we certainly will do that. 



34 

But I would like to add that some of the inner ciy men who 
looked at this material were struggling to find a meal the next day. 

Mr. Thornton. I do understand that. 

Mr. Gambino. And their language, their syntax, and so on, was 
very similar, if not identical, to the language in some of the materi- 
als that we have shown here today. 

Mr. Thornton. I do understand that. 

Mr. Gambino. We will certainly review it; and I got the Chair- 
man's point loud and clear, sir. 

Mr. Thornton. My grandfather, who was a very wise gentleman, 
said that poverty is nothing to be ashamed of nor proud of, but to 
be gotten shed of as quickly and conveniently as possible. 

And I think we have to be very careful in targeting poverty or 
difficulties as being appropriate to a certain group. And I hope you 
will look at it again. 

Thank you, Mr. Chairman. 

Mr. Stokes. Thank you. I don't want to beat a dead horse, but I 
must respond here Mr. Gambino. It seems to me you say you took 
this and showed it to a group of people who were struggling to find 
a meal the next day. 

Mr. Gambino. Some of them, yes, sir. 

APPEALING to THE TARGET AUDIENCE 

Mr. Stokes. Those people are not experts on what appeals to 
black Americans. We have professional people in the black commu- 
nity, the same as the white community has, who are trained and 
educated and who are professionals and who study market trends 
and market data. 

You are talking to someone who possibly is illiterate, hungry, 
destitute, uneducated, and asking them for a professional opinion. 
Some professionals might have told you that a photograph of Gen- 
eral Colin Powell, the first African American to become Chief of 
the Joint Chiefs of Staff may well appeal to black youth much 
more than "Mo money" does. That is what I am I talking about. 

Mr. Thornton. Will the Chairman yield? 

Mr. Stokes. Certainly. 

Mr. Thornton. The caption could be, "How would you like to 
work for this man?" 

Mr. Stokes. Certainly. Something like that. It would be much 
more professional. 

Mr. Brodsky. Please understand that we are not, through this 
material, trying to reach professional or professionally oriented 
black youth. We are trying to reach someone who is not register- 
ing, namely, the disadvantaged youth in the inner-city, who is the 
high school dropout. They are not registering in the numbers that 
we would like to see. That is who the materials are aimed at. It is 
not aimed at the professional black, Hispanic or Asian who has the 
education and who may not relate to those appeals. That is very 
clear. 

Let me just add something about the "Mo money" slogan or 
headline. It is a popular expression from the television program, 
"In Living Color." There is also a motion picture of the same name. 
So we are taking an advertising approach here, not unlike the ma- 



35 

terials we developed during the release of the movie, "Batman Re- 
turns." We used a popular slogan to help get out our message. 

It is not meant to be denigrating or anything like that. It is a 
basic advertising device capitalizing on recognition of a slogan that 
is the title of a very popular motion picture in the inner-city com- 
munity. We related the slogan to the personal benefits of registra- 
tion. 

Mr. Gambino. We don't want to beat a dead horse either. We got 
your message very clearly, and we will certainly march to your 
orders. 

MANPOWER AND ORGANIZATIONAL SURVEY 

Mr. Stokes. In your testimony, you mention that the study on or- 
ganization of the SSS written by analysts from the U.S. Army 
Force Integration Support, Agency and completed in November 
1992 had fatal flaws. Some flaws derived from the fact that this 
agency had no experience or expertise in evaluating the operations 
of an independent civilian agency. Other flaws originated from the 
agency's inexperience with the applicable computer technology, 
since many of its recommendations have been previously examined 
and found impractical by the agency staff. 

Taking all of that in consideration, the study made some disturb- 
ing observations. For example, the agency found that, "an over- 
staffmg situation throughout the Agency. The overstaffing was not 
centralized or focused in any particular organization or element 
but existed in all the Agency's organizational entities." 

The study team went on to recommend an overall reduction in 
the Selective Service System by about one third. 

I realize that you probably disagree with this conclusion, but can 
you tell us-or do you have any idea why the Selective Service 
System made such a negative impression on the USAFISA ana- 
lysts? 

Mr. Gambino. Well, sir, I take a lot of responsibility for that be- 
cause I don't think they were briefed to the extent that they should 
have been briefed. I don't think we knew enough about their back- 
ground and experience before we started introducing them into our 
background. 

To my knowledge, prior to undertaking this study, their work 
had been almost exclusively with Army elements that had higher 
echelons and other Army or DoD components that established 
policy or guidelines that would assist these elements in doing their 
work. 

In our case, as an independent civilian agency, we don't have a 
higher echelon to establish agency policies. We have to do that our- 
selves. And, unfortunately, I think, that misconception caused 
them to make some erroneous recommendations. 

Another problem was that the study team looked at our author- 
ized positions, instead of focusing on our funded positions. Conse- 
quently, they recommended the reduction of a number of people in 
an organization who hadn't been working in that component for a 
long time, such as in our registration division. The division's man- 
ning document shows 13 authorized positions, but four of them 
have been vacant for over a year. 



36 

So when they recommended that this person or function be eUmi- 
nated, they were often talking about a position that had been 
vacant for some time and not Ukely to be filled. 

In addition, they said that the absence of overtime indicated that 
a unit was fully staffed, but that doesn't mean the same thing to 
us. To most of us in just about every component, it meant that 
many of our professional personnel were working overtime but not 
claiming it. I know there is an enormous amount of overtime 
worked in that manner. 

I have been through this exercise many times, and I am sure 
that you are familiar with the situation in which an outside firm 
or the Inspector General is called in to take a look at your organi- 
zation. The nature of the beast is that they have to make recom- 
mendations for cuts; that is just the way it is. I knew that before- 
hand, but I decided to go ahead with this particular organization 
because the money for the study was transferred between Federal 
agencies. It was not going to the civilian sector. With our eye on 
the economy, we thought that might be a plus. And in addition, I 
was hopeful that they could get to work on this study almost imme- 
diately. 

I wanted an outside organization because I was earnestly seeking 
an arm's length review of the Agency that would not be impacted 
by our own parochial views. That is why I went to this organiza- 
tion. Although seriously flawed, I do think the study has given us a 
lot to think about. It introduced a reality check which I think will 
make our own internal review more thorough. And we will produce 
a better product as a result of the study. 

AGENCY MORALE 

Mr. Stokes. The study team also found poor morale, overgrading, 
and inefficient computer systems. 

And although the study team may have been wrong with com- 
puter systems, the signs of poor morale are unmistakable. 

What do you plan to do to improve morale? 

Mr. Gambino. Well, sir, that finding came as a little bit of a sur- 
prise to me. Yes, we do have some people that are not overly 
happy. But I believe that is largely because we are such a small 
agency and there's been much employee concern lately about a pos- 
sible change in the Agency's mission and a resultant reduction in 
personnel. 

Also, we have had a selective hiring freeze for some time and our 
grade ceilings are very difficult to penetrate. For people to get pro- 
moted, they have to either wait for someone to leave the Agency or 
die. And that is not conducive to good morale. 

Overall, however, I think we do have good morale; I just think 
the study team misjudged it. Also, I believe that the working of 
overtime, without complaints, has to indicate high morale. 

In addition, we have implemented an alternative work schedule 
in our Agency which, I think, all the employees felt was very, very 
morale building. They like it and I like it. Productivity is good and 
I think morale is high. Also, we have recently hired a TQM coordi- 
nator who is implementing total quality management within our 
organization. We are making great strides on that. We have some 



37 

quality teams that are working together and I think enjoy doing 
that type of work. I am very supportive of our TQM efforts, and I 
see it improving just about every day. 

REGION STRUCTURE 

Mr. Stokes. Now, the study team also noted, Mr. Gambino, that 
the Military Enlistment Processing Command, MEPCOM, the mili- 
tary entity that receives inductees, has three regions, while Selec- 
tive Service has six. 

Aligning Selective Service regions with military processing re- 
gions seems to make sense. 

Do you plan to implement a parallel regional structure to 
MEPCOM? 

Mr. Gambino. No, sir, I do not. We are a mobilization organiza- 
tion, and we are divided into six regions. If the balloon goes up, we 
will have to establish state headquarters and open up new area of- 
fices in every state in the Union. I think it would be entirely too 
much span of control to reduce it to three regions. In fact, during 
our recent mobilization exercise we had participants in over 500 
places throughout the United States. There we found that the six- 
region organization is an effective, efficient one which we could 
rely on if we had to mobilize. And that is what we are all about. 

ACCURACY OF THE ADDRESS DATABASE 

Mr. Stokes. Selective Service matches its information against 
change of address forms collected by the U.S. Postal Service, auto- 
matically changes addresses when a registrant moves. 

Can you give us an estimate, in percentage terms, as to the accu- 
racy of your database at any given point of time? 

Mr. Gambino. You mean the accuracy of the addresses of the 
people that we want to reach? 

Mr. Stokes. Yes. 

Mr. Gambino. It is about 97 percent. 

Mr. Stokes. How do you test it? 

Mr. Gambino. It was tested recently with the help of professor. 
Dr. Arthur Kirsch, who is the chairman of the statistics depart- 
ment at George Washington University. Under his guidance and 
utilizing his suggestions, we did statistical sampling of addresses. 

And as a result of that sampling, over a period of a year, it came 
to about 97 percent accurate. 

Freida? 

Ms. Brockington. It was 97.8 percent. 

Mr. Gambino. I am very, very confident that we could reach 97.8 
of the 20-year-olds or those who will be 20 years old. They are the 
young men who would be the most vulnerable to be drafted if we 
had conscription. 

Mr. Stokes. How often do you do the testing? 

Mr. Gambino. Well, we just finished the test last year. I am sure 
that my successor will want to do the testing again in another 
year. 

Mr. Stokes. Ms. Kaptur, I yield to you for any questions you may 
have. 



38 



NATIONAL SERVICE PROGRAM 



Ms. Kaptur. I was very interested in your testimony, Mr. Gam- 
bino, about the possibility of the Service working with the adminis- 
tration on the Community Service Program that they are launch- 
ing. 

Has anything happened beyond what is in your testimony? 

Mr. Gambino. No, ma'am. I think that they are just so busy over 
there that they have not had a chance to get back to us. I have 
called to meet with representatives of the National Service office 
because I believe they could utilize our expertise and years of expe- 
rience in their planning process. 

Ms. Kaptur. Who do you deal with, if I may ask? 

Mr. Gambino. Four people visited the Agency briefly with a 
member of the transition team. I really don't recall their names. I 
.would have to look at my notes. 

Ms. Kaptur. Were they the President's staff or one of the agen- 
cies? 

Mr. Gambino. They were on Eli Segal's staff, but he is the person 
that I am trying to get in touch with. Mr. Segal, ma'am, is the As- 
sistant to the President for National Service. 

I just feel that he must be just tremendously busy. I know that 
he is dealing with ACTION and a number of other agencies around 
town and just hasn't gotten around to us. 

Ms. Kaptur. We provided 100,000 slots in the emergency stimu- 
lus package that we passed here and, as a part of the first budget, 
100,000 for the first year. So I know that they have a threshold 
number, but I am not real familiar with how they are filling those. 

Mr. Gambino. We are pretty good at polling, and I think they 
could possibly use our lottery expertise too. 

REACHING inner CITY YOUTH 

Ms. Kaptur. We will make a phone call over there. Our office 
happens to be very interested in this. And I think you do have a 
very special capacity. And I am glad about what you have done 
with inner-city-initiatives trying to reach out to inner-city youth. It 
is interesting. You may want to do a couple of articles — did you al- 
ready ask about this? 

Mr. Stokes. I am so pleased that you obviously were not prepped. 

Mr. Gambino. I am glad that you arrived. 

Mr. Stokes. We have been around that issue. 

Ms. Kaptur. This was not planned. 

I was very interested in some of the findings that you have listed 
here. And I find a reaffirmation of my own views, especially this 
sentence that young men in the inner-cities are often on their own, 
not tied to family, institution, or church. And I have felt that the 
gang has become a substitute to the family for many of these 
young men; and your studies seem to verify that. 

I don't know how much information you have. You, obviously, 
have figured out how to try to reach out in different parts of our 
community. 

Mr. Gambino. We are not 

Ms. Kaptur. There is something here between the lines. 

Mr. DeLay. No, it is out on the table, not between the lines. 



39 

Ms. Kaptur. Whatever you learn is equally applicable in voter 
registration, reaching young people for GED. 

Mr. Gambino. National Service. 

Ms. Kaptur. I will tell you, in my own office in Toledo, Ohio, for 
11 years, we have tried to recruit young men and women from the 
inner-city communities for the Air Force, West Point, Annapolis, 
Coast Guard Academy, even the prep schools, and it has been a 
very revealing experience because we have done more than sit 
there and wait for people to call us. We have been as aggresive as 
Chairman Stokes' office would have been to identify these young- 
sters, to identify the youth to get them to apply and go through the 
screening. 

Of all the things that have happened to me in my congressional 
career — and there have been plenty of those — ^just trying to reach 
and affirmatively recruit minorities for the academies has been one 
of the most difficult parts of my job, and just reaching youngsters. 

I hope that you are able to, at some point, provide more informa- 
tion to us on what all of these focus groups have shown and all, 
because I think reaching out to a community that is not connected 
to many of the institutions that have been traditional ladders up 
make it just very, very difficult. And I am sure that you have seen 
that now because you have a national network. 

Mr. Brodsky. May I suggest that we share the report? 

Mr. Gambino. This is Lew Brodsky, head of our Office of Public 
Affairs and in charge of our Outreach Program. 

Do you have a comment? 

Mr. Brodsky. We would be pleased to share the report of that 
research. It is very thick and gives some good insight. 

Ms. Kaptur. I notice that you say mothers play an important 
role as influencers for minority Americans more so than in main- 
stream, young male groups. 

And I guess my question is: Where do you find the mothers? In 
the churches? 

Mr. Brodsky. Yes. We plan on doing a mailing to church leaders. 

Mr. Gambino. We found out through the research such things as 
when these young men watch television or listen to the radio. We 
have a lot of statistics which may be helpful that we would be 
happy to share with you. 

THE registration OF WOMEN 

Ms. Kaptur. This is just a tangential question. In the armed 
services academies we appoint both men and women, and we have 
women in all branches of the service. And I know that registration 
is just for men. I am not advocating registration for women; but it 
bothers me because, if you are going to have equity, then it seems 
to me one faces that question down the road, that in the time of 
draft, women would also be considered. 

I am curious, in terms of your own view of that issue and exist- 
ing law versus future law, where do women fit into the Selective 
Service process potentially in the future? I mean, how do you think 
about this issue? 

Mr. Gambino. Well, we think about it as a matter of law requir- 
ing the registration of men only. But, as you know, the Congress, 



40 

several years ago, asked us to develop a system to deliver health 
care personnel to the DOD in the event of an emergency. That leg- 
islation did not say men only or women only; it said health care 
personnel. 

As a result, when we were developing this system, we included 
both men and women that are in the health care field. But in the 
event of a call for health care personnel, as it stands today, the 
Congress would have to instruct us specifically to include women. 

However, today we could not meet the medical personnel needs 
of the DOD without drafting women because they dominate the 
nursing profession and other health care specialities. 

Ms. Kaptur. I have a reserve unit in my district. 

Mr. Gambino. The ratio of health care women to men will in- 
crease every year. Otherwise I really don't believe that I am com- 
petent to comment on what the women's role is in the military. We 
will just have to do what the Congress instructs us to do. 

Ms. Kaptur. I don't believe people should fight anyway. I, funda- 
mentally, don't believe that. I think that is a vestige of male behav- 
ior patterns. So I have some internal conflicts. I want women to 
succeed wherever they choose to live their lives; but, on the other 
hand, I don't think we should have to live our lives at war. I appre- 
ciate your comments on that. 

Mr. Gambino. Thank you. 

MOBEX 1993 

Mr. Stokes. The Selective Service System conducted its mobiliza- 
tion exercise, MOBEX 93, just a few weeks ago largely to test the 
Agency's ability to mobilize personnel and transfer data. 

Your justification notes that fiscal year 1994 will focus on re- 
viewing problems noted during MOBEX 93. 

Can you describe for us some of the results of MOBEX? 

Mr. Gambino. Yes, sir. The MOBEX included the testing of our 
ability to transfer the files from our 500 offices to our headquarters 
or to the data management center on an interactive network. The 
file transfers were essentially to let the headquarters and data 
management center know what was going on in the area offices 
such as the status of registrants either seeking deferments or being 
processed to go on to the MEPS. 

We found that we had some difficulty in transferring our files 
and we had a few other minor problems in staffing some of the 500 
area offices that we opened. 

Essentially, however, the mobilization exercise proved that we 
can do what we told the Congress that we could do, and that is to 
mobilize on a moment's notice and provide untrained manpower to 
the Department of Defense. What we have not done — and what I 
had planned to do in 1995, and hope will be done by my successor- 
is a full mobilization training exercise which would include the 
headquarters, every regional office and every state headquarters as 
well as the area offices and the DMC. It would be a total mobiliza- 
tion exercise for the entire agency. We have never done that. 



41 

FY 1994 REQUESTED INCREASES 

Mr. Stokes. We are going to ask you to provide, for the record, 
some information. You requested a net increase of $396,000. Ex- 
penditures on personnel compensation will decrease by $82,000, 
while small increases occur in your travel budget, rental payments 
to GSA, utilities, and other services and equipment. 

And we are going to ask you to tell us, in the record, why you 
need additional money in these areas. 

Mr. Gambino. All right, sir. 

[The information follows:] 

Additional FY 1994 Funding 

The requested net increase for FY 1994 of $396,000 is as follows: 

The $82,000 net decrease in personnel compensation is due to a four FTE reduc- 
tion ($182,000), as directed by the Administration. This decrease is offset by the ad- 
dition of ten Reserve Force Officers ($100,000) in our continuing effort to fill are au- 
thorized billets. 

A decrease of $35,000 in personnel benefits related to the four FTE reduction. 

The increase in object classes 21.0 through 31.0 of $273,000 is due to the inflation- 
ary increased of 2.7% over the FY 1993 level, as prescribed by the Office of Manage- 
ment and Budget. 

An increase of $240,000 is due to a five cent increase in the cost of a registration 
processed by the U.S. Postal Service; the additional cost to print training guidance; 
and the additional cost of systems furniture needed at the new location. 

DELIVERY TIMES WITH AND WITHOUT PEACETIME REGISTRATION 

Mr. Stokes. I also want to review, just so the record is clear, for 
a moment with you, some of our earlier testimony. 

We are talking about, really, on what you can deliver and when. 

Mr. Gambino. Yes, sir. 

Mr. Stokes. If there is peacetime registration in place, you can 
do regular Army inductees within 10 days? 

Mr. Gambino. Yes, sir. We can start delivering in 10 days after a 
registrant receives his induction notice or at M + 13 days. 

Mr. Stokes. Okay. And health care personnel within 42 days; is 
that correct? 

Mr. Gambino. Yes, sir. At M + 42, that is correct. 

Mr. Stokes. Now, if there is no peacetime registration and the 
Selective Service System is not in deep standby, then you can do 
regular Army inductees, within 42 days; is that correct? 

Mr. Gambino. Yes, sir. 

Mr. Stokes. And health care personnel also within 42 days? 

Mr. Gambino. That is correct. 

Mr. Stokes. And, if the Selective Service System is in deep stand- 
by, you can do regular Army inductees within six months? 

Mr. Gambino. That is correct. 

Mr. Stokes. And health care personnel also within six months, 
am I correct? The record is correct? 

Mr. Banister. Yes, sir. The main reason is that our ADP systems 
would not be up and running in deep standby. We would have to 
acquire ADP facilities and hire and train staff. And that is the 
reason for the delay. 



42 



MINORITY EMPLOYMENT 



Mr. Stokes. Mr. Gambino, during appropriation hearings last 
year, we discussed your Agency's Affirmative Action plan. I was 
pleased to hear the Selective Service System was making an effort 
to increase the number of women and minorities in senior level po- 
sitions throughout the Agency. 

Let me follow up with, along those lines, a couple of questions. 
Can you tell us how many women and minorities does your Agency 
have presently serving in senior positions? 

If you could talk, specifically, about GS's and GM-13's and above. 

Mr. Gambino. I will submit all of this for the record, sir. 

Mr. Stokes. We would be pleased to have it all in the record. 

Mr. Gambino. Among our GS or GM13 and above, we have 18 
women, one Pacific Islander, and four African Americans. 

Mr. Banister. Two males, two females. 

Mr. Stokes. Out of how many? 

Mr. Banister. Based on a staffing level of 258 for the Agency, we 
have 73 African Americans. This represents about 28 percent of the 
total. 

Mr. Stokes. That is at what level now? 

Mr. Gambino. That is at all levels. 

Mr. Banister. But we have four GS or GM13s and above. 

Mr. Stokes. Out of 200 and 

Mr. Banister. 58. 

Mr. Stokes. Give me the total number of your 13s and above. 

Mr. Banister. Three 13s and one 15. 

Mr. Stokes. I mean the total that 

Mr. Banister. Oh, in the agency? 

Mr. Stokes. In the agency. 

Mr. Banister. Excluding the Director, who is at the executive 
level, we had 51 GS or GMs on board as of the end of the first 
quarter of the fiscal year. 

Mr. Gambino. Of the total, we have 29 percent men, 71 percent 
women; 65 percent white, 28 percent African Americans, 3 percent 
Hispanics, 3 percent Asian or Pacific Islanders, and 1 percent 
American Indian. 

Mr. Stokes. In terms of women and minorities serving as region- 
al directors within the six regions of the system, do you have any? 

Mr. Gambino. Yes, sir. We have a deputy director of Region 4, a 
Caucasian woman. 

Mr. Stokes. What about minorities? 

Mr. Gambino. We don't have any minorities serving in the 
region as a director or deputy director. 

Mr. Stokes. What I will ask you to do is put all those tables that 
you have in the record. 

Mr. Gambino. That is fine. 

[The information follows:] 



43 



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44 

Mr. Stokes. Is this an area in which you are working to im- 
prove? 

Mr. Gambino. Yes, sir. We are working to improve on this. But I 
feel that we need to continue to put special emphasis on minority 
hiring. 

As far as promotions, it is a very slow process, as I indicated to 
you before, because we are a small organization. We don't have 
many opportunities to promote people unless someone leaves. 

I am telling you that although I feel pretty good about our 
progress in this area, I am certainly not going to relax our efforts 
to improve. In the total Federal service, the ratio is about 50-50 
men to women, with 74 percent white and 16 percent African 
Americans. Ours is 65 percent white and 28 percent African Ameri- 
can. My goal is to continue to work hard to improve on those num- 
bers. 

COMMUNICATION REGARDING FORMER REGION DIRECTOR 

Mr. Stokes. All right. You may be familiar with the fact that my 
office staff has been in touch with your office regarding a colonel 
who was the Agency's first and only black regional director who was 
dismissed. 

Mr. Gambino. Right, sir. 

Mr. Stokes. And I want to thank you and your office for the co- 
operation that we have gotten in terms of inquiring into that 
matter. As I understand, you are doing an investigation relative to 
it. 

Mr. Gambino. No, sir. Our investigation has been completed. The 
Army, I believe, has about completed their investigation. I don't 
know exactly where that stands, but I believe the Army is taking 
some action. I don't think it has been completed. My investigation 
has been completed. 

Mr. Stokes. It has been? 

Mr. Gambino. Yes, sir. 

Mr. Stokes. I will have a number of questions submitted to you 
for the record about that situation. 

Mr. Gambino. I will be happy to talk to you in a private forum if 
you desire. 

Mr. Stokes. We may want to have some dialogue with you about 
it. 

[The information follows:] 



45 



Congressman Louis Stokes 

Former Region Director 

Question: For the record, are you aware of the incident regarding 
one of your former region director and the Inspector General's 
report related to this matter? 

Answer: Yes. I was kept informed by the Inspector General during 
the Inspector General's investigation. 

Question: On what basis did you determine to investigate the 
anonymous allegations against the former region director? 

Answer: The Inspector General briefed me on the anonymous letter 
as soon as she received it. She reviewed control records 
maintained here at Headquarters and found some initial evidence of 
possible abuses. Based on these initial indications that the 
allegations might be substantiated, I directed the Inspector 
General to conduct an inquiry. 

Question: Have you had investigations conducted on other SSS 
employees based on anonymous allegations to determine if others are 
abusing government resources? (Please ask IG's view on this matter 
as well) . 

Answer: Investigations have been conducted in the past based on 
anonymous allegations. No investigations are ongoing at this time. 
However, the Inspector General is in the process of reviewing 
management controls on the use of government resources within the 
Agency. This includes a review of samples of records from all 
Agency offices, and will include selected site visits. If 
indications of fraud or abuse are discovered during this review, 
further inquiries will be conducted. 

I did not have investigations conducted into the matters 
referred to in the anonymous letter of December 10, 1992 (a copy of 
which was sent to you) , because I had personal knowledge that the 
allegations were spurious. An inquiry was made into one of the 
allegations. Information received indicated that the allegation 
would not be substantiated, so a formal investigation was not 
conducted. 

Comments from the Inspector General 

Investigations of other SSS employees have been done based on 
anonymous allegations. The anonymous letter dated December 10, 
1992 was addressed to the Director. He provided me a copy, but 
stated that he had personal knowledge that the allegations were 
unfounded. I spoke with one of the individuals named in the 
anonymous letter and suggested that he provide a written 
explanation. Based on that explanation I believed that no further 



46 



Congressman Louis Stokes 

investigation was warranted. I am currently conducting a review of 
the controls in place on the use government resources. 

Question: I have received a copy of the internal investigation 
report concerning your former region director prepared by your 
Inspector General. I understand that an external investigation was 
also conducted by the Army's Criminal Investigation Command. Were 
the final results of these two reports the same or were there 
discrepancies? 

Answer: I have not seen the report prepared by the Army's Criminal 
Investigation Command. The Selective Service System Inspector 
General did see the report (the Colonel's defense attorney shared 
it with her) , but was not given a copy. The Inspector General 
states that the Army's Criminal Investigation Command report 
included documentation of interviews, and sworn statements, 
confirming the findings in the Inspector General's report. The 
report also included some additional information on areas not 
reviewed by the Inspector General. 

Question: I would appreciate it if your office would provide me 
with a final report regarding this matter for my staff's review. 

Answer: On December 15, 1992, I provided you the final Selective 
Service System report. We do not expect to receive a copy of the 
Army Criminal Investigation Command report. If you have any 
questions concerning the Army investigation, or wish to receive a 
copy of their final report, please contact the Washington Resident 
Agency, USACID. 



47 



Congresswoman Marcy Kaptur 

Program Administration 

Question: Registration compliance is already at a high level. 
Have there been any changes in the last few years in the percentage 
of men that are registering? In which ways are they registering 
i.e. through the Post Office or the Reminder Mail Back Program, 
etc. I note the percentages on page 15 of your budget 
justification but what have been the trends in the past few years? 

Answer: Registration of the draft eligible population group has 
remained fairly steady at the 98% to 99% level over the past 
several years. The attached chart shows the sources of 
registrations from FY 1989 to FY 1992. Registrations from the Post 
Office have decreased from 35.9% to 27% with reminder card 
registrations increasing from 30.4% to 36.6%. Slight increases can 
also be seen in the compliance program registrations and those from 
other miscellaneous registration programs. The trend away from 
Post Office registrations to the less expensive reminder card 
program has allowed Selective Service to accomplish registration at 
a reduced cost. The reminder card registration program contributes 
significantly to the Agency goal of improving productivity and 
services through automation, technology and the optimal use of 
personnel and financial resources. 



48 




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49 



Congresswoman Marcy Kaptur 



Minorities and Persons With Disabilities 

Question: Your budget indicates a desire to increase the number of 
minorities and persons with disabilities in the agency. How does 
your personnel base break out? How are you doing in your 
recruiting process? 



Answer: 



Men 

Women 

Total 

White 

African American 

Hispanic 



Full-time Staffing as of April 5, 1993 

On Board % of Total Workforce 

68 28.0% 

178 72.0% 
246 

158 64.0% 

71 29.0% 

9 3.7% 



Asian American 

or Pacific Islander 



American Indian 



7 2.9% 

1 0.4% 

Employees With Disabilities 
Total Number of Employees Who Reported Disabilities 
Number of Employees With Targeted Disabilities 



24 
2 



The Agency has been under a selective hiring freeze throughout 
FY 1993. To date, we have hired only five full-time employees at 
the Data Management Center in Great Lakes, Illinois, to fill 
positions that would affect the timely processing of registrant 
data. Of the five employees hired, three are African American, one 
is Asian, and the other is White. 

The Agency has been encouraging, in writing, selecting 
officials for every recruitment action to hire persons with 
disabilities, Veterans Readjustment Appointment eligibles, and 30% 
disabled veterans. 

During the month of July 1992, the Agency distributed 
materials and displayed posters and flyers, informing employees 
about the Americans With Disabilities Act and emphasizing the 



50 



Congresswoman Marcy Kaptur 

importance of our obligation to provide career opportunities and to 
enhance our understanding of disabled persons in our workforce. 

Eliminating Agency Funding 

Question: Many have critiqued the need for a Selective Service 
System and have touted the fact that eliminating funding for the 
Agency would result in a savings of $30 million. How do you 
address these concerns and what ways have you attempted to cut 
costs at the Agency or would doing so harm your mission? 

Answer: While it is true that withdrawing all funding for the 
Selective Service System would amount to $28.6 million savings in 
FY 1993, the Nation would be deprived of the only mechanism 
available to regenerate manpower for our downsized Armed Forces. 
With its unique data base, modest but highly trained workforce, and 
tested procedures. Selective Service capitalizes upon its limited 
resources to provide both a fair and equitable standby program 
which will work. 

Like others in both the governmental and civil sectors, 
Selective Service has implemented creative ways to cut costs and 
continues to do so while performing our statutory mission. Over 
the past several years, the Agency has reduced the military grades 
of our part-time National Guard and Reserve forces; we have more 
officers at lower cost. Board member and staff travel have been 
reduced over 3 percent. The public toll free telephone service 
has been eliminated. Further, the Agency has converted our 
Registration Reminder Letters to more cost-effective postcards, as 
well as our former Acknowledgement and Verification Letters. The 
Agency has also put in place a National Change of Address program 
which has cut down on postage, correspondence, and processing time. 
It should be noted, however, that the FY 1993 appropriation is 
smaller in real dollars then it was ten years ago. 

Maintaining Accurate Records 

Question: How does the Selective Service System maintain accurate 
records i.e. addresses of its registrants? 

Answer: Since Selective Service must maintain correct mailing 
addresses on its registrants to equitably administer any draft, we 
utilize several methods to ensure accurate records. The 
Registration Acknowledgment which is forwarded to a young man as 
proof of his registration also has attached to it, a Registration 
Information Change Form which may be used to update the information 
in his registration record. The registrant may also make a change 
to his registration record by obtaining and completing a 
Registration Change Form (SSS Form 2) from the Post Office, or by 
telephoning Selective Service at our Data Management Center. In 
addition to the registrant identified change of address updates. 



51 



Congresswoman Marcy Kaptur 

Selective Service also uses the U.S. Postal Service's commercial 
change of address service to update addresses. To test the 
accuracy of the data base and the completeness of address change 
reporting, Selective Service conducted a survey by mail in 1992 to 
validate the quality of address data in our Registrant Data Base. 
The results of this survey showed that Selective Service can reach 
97.8 percent of the registrants in their prime year of 
vulnerability for induction (age 20) . 

Consolidation/Relocation 

Question: Last year, you had indicated that you would be 
identifying a site last spring to consolidate your headquarters and 
computer center. This year, you are still working with GSA and a 
site has not been identified. When will a site be identified? 
What is the delay? 

Answer: GSA recently identified the site for a consolidated 
Selective Service System National Headquarters as being in Rosslyn, 
Virginia. The building owner has signed the lease and the lease is 
now undergoing final review within GSA prior to its being signed by 
GSA on behalf of the Federal government. GSA expects the lease 
will be finalized by the end of April 1993. 

The delay in the lease procurement was a result of the 
withdrawal of all offerors just prior to award last June (1992) . 
The withdrawal of all offers was not the fault of GSA and was for 
reasons entirely beyond GSA's control. As a result of the 
withdrawal of all offers, GSA had to start the procurement process 
over again. 



52 



Congressman Esteban E. Torres 



Hispanic Employment 

Question: "Following up on a couple of questions that my 
Chairman, Mr. Stokes asked, I understand that your agency has 3 
percent Hispanic employment. At what level are these employees? 
How many are at GS-13 and above? 

Answer: 

Hispanic Population 

Total Number of Full-time Hispanics 



1 - 


GS-2 


1 - 


GS-3 


2 - 


GS-4 


2 - 


GS-5 


2 - 


GS-6 


1 - 


GS-7 


1 - 


GS-9 


10 - 


Total 



Total Number of Intermittent Hispanics (State Directors) 

2 - GS-13 
1 - GS-14 

3 - Total 

Registration Campaigns for Hispanic Men 

Question: Are you conducting any registration campaigns 
specifically targeted to Hispanic men? 

Answer: Registration awareness materials targeted at Hispanic 
men are a part of our program. In recent years. Selective 
Service has produced television public service announcements for 
release to the nation's TV stations in both English and Spanish 
versions. Additionally, annual multi-spot radio campaigns have 
always included at least one public service announcement in 
Spanish. Last year Selective Service beg=^n work on an "inner 
city" public awareness initiative designed to communicate the 
registration reminder message to young men in low compliance 
areas. First, extensive attitudinal surveying of urban African 
American, Hispanic, and Asian men was done to determine the best 
means of delivering information about Selective Service 
registration. From that, creative concepts were developed into 
poster, radio, theater slide, billboard, and information kits. 
Throughout this campaign, which will be tested first in five 
northeastern cities during FY 1993, bilingual materials will be 
used. The Spanish-language information contained in radio spots 
and brochuj-es is aimed at young male U.S. citizens and resident 
aliens, and those adults who influence them. 



53 



Congressman Esteban E. Torres 

"Deep Standby" 

Question: "Mr. Stokes also asked you for information on the 
'Deep Stand' program. I would like to understand if the $11.2 
million to move the Selective Service into '"Deep Standby' is an 
annual expenditure or a one-time only expenditure? If the 
expenditure is an annual expenditure, could you please outline 
the costs?" 

Answer: Using the FY 1993 appropriation, $11.2 million was the 
projected savings based on the number of authorized positions 
that would be saved if the Agency was in the state of "Deep 
Standby" for all of FY 1993. However, all of these positions 
were not funded in FY 1993. Therefore, it is now estimated that 
$10.7 million would have been the savings if the Agency reverted 
to "Deep Standby" for all of FY 1993. This amount represents an 
annual savings. Based on the FY 1993 appropriation, it is 
estimated that the annual cost of operating the Agency in "Deep 
Standby" would be approximately $17.9 million. This amount does 
not include the additional funding which would be required to 
implement "Deep Standby"; e.g. partial year funding for the 
departing personnel, severance and accrued leave payments, 
unemployment compensation payments, etc. 



54 

Mr. Stokes. I think that does it. 

Director, we appreciate very much your appearance here. We 
have had a good hearing today. 

Mr. Gambino. Thank you, sir. 

Mr. Stokes. And we appreciate your appearance along with your 
colleagues. 

And we are now adjourned until 2:00 p.m. this afternoon. 

Thank you very much. 

Mr. Gambino. Thank you very much, Mr. Chairman. 

[The justifications follow:] 



55 




56 



.-. . 4 THE DIRECTOR OF SELECTIVE SERVICE 

' ^■'-'f ' Wathington. DC 2043S 



March 25, 1993 



The Honorable Louis Stokes 

Chairman, Subcommittee on VA, HUD and 

Independent Agencies 

Committee on Appropriations 

House of Representatives 

Washington, D.C. 205X5 

Dear Mr. Chairman: 

Transmitted herewith is the Selective Service System's fiscal 
year 1994 budget submission in the amount of $29,012,000. This amount 
provides for continuing the Agency's mission at the current level and 
helps to offset some of the increased costs related to inflation. 

I look forward to meeting with your distinguished Subcommittee 
to discuss the programs of the Selective Service System and provide 
you with information on our budget request. 

Sincerely, 



Robert W. Gambino 



57 



TABLE OF CONTENTS 

Page 

Introduction 

Program and Performance 1 

BiimniwrY Statements 

Program Highlights 2 

Summary of Program Costs 4 

Justification and Explanations 

Mobilization Readiness 5 

Registration 14 

Registration Improvement 17 

Compliance 22 

Automated Data Processing 24 

Administration 29 

Detailed Material for Appropriations 

Appropriation Language Sheet 33 

Program and Financing Schedule 34 

Schedule of Object Classification 35 

Personnel Summary 36 

Object Classification Comparison 37 

Obligations for Information Technology Systems .... 38 

Major Information Technology Acquisition Plan .... 40 

Graphs (FY 1982 - FY 1992) 

Total Budget History 41 

Total Personnel Compensation 42 

Total Personnel Benefits 43 

Total Travel Costs 44 

Total Other Operating Expenses 45 

Other Material for Analysis 

Organization Chart 46 

Regional Map 47 

Registration Form 48 

Acknowledgement Postcard 50 

Verification Postcard 52 

Reminder Postcard 54 

Compliance Letters 57 

Registration Status Form 

(Enclosure to Compliance Letters) 60 



58 



PROGRAM AMD PERFORHAKCE 

In FY 1994, the Selective Service System will continue to 
register men as they reach age 18, conduct a non-registrant 
identification program to insure compliance with the law, and maintain 
a data base of registrant records. The System will continue to 
enhance its capability to respond rapidly and efficiently if needed. 

Mobilization readiness remains one of the System's major 
objectives. Activities in support of this objective include all 
facets of national and regional operational planning, maintenance of 
automated registration information, a comprehensive training program 
for the System's Reserve Forces, a training program for the standby 
board members, and administrative functions. The processing 
procedures of the Registrant Information Management System will 
continue to be tested and refined to insure that it can fully satisfy 
the emergency manpower needs of the Armed Forces. 

Reserve and National Guard officers are trained for mobilization 
assignments in specific positions with the System. Special emphasis 
is placed on exercising mobilization plans to ensure high readiness 
in the event of mobilization. The FY 1993 exercise was a nationwide 
preparedness test of the entire system including a comprehensive test 
of automated data processing support systems. 

Selective Service has satisfied § 10(h) of the Military Selective 
Service Act, as amended by § 715 of P.L. 100-180, approved on December 
4, 1987, which required development of a structure for the 
post-mobilization registration and classification of persons qualified 
for practice or employment in a health care occupation essential to 
the Armed Forces. The post-mobilization Health Care Personnel 
Delivery System (HCPDS) combined examination and induction system is 
complete. This standby system could respond, upon authorization by 
the Congress and implementation by the President, to any future major 
conflict requiring conscription of skilled civilian health care 
personnel to augment the Armed Forces. FY 1994 plans call for 
completing any follow-on components not finalized in FY 1993, and 
subsequent periodic review, updates, and tests to keep HCPDS viable 
in a standby form. 

In FY 1994, registration improvement activities will include 
emphasis on targeted urban and other areas where registration 
shortfalls are the greatest. Public awareness, enhanced compliance 
efforts, and Federal and State legislation requiring registration as 
a prerequisite for employment and student financial assistance, all 
contribute toward improved compliance with the law. 



59 



PROGRAM HIGHLIGHTS 

Mobilization readiness and registration improvement will continue 
to be important activities of the Selective Service System (SSS) in 
fiscal years 1993, 1994, and 1995. A nationwide readiness test of the 
major components of SSS was held in March 1993. The exercise involved 
virtually all of the SSS Reserve Forces, Recruiter Augmentees, and 
members of selected Local and Appeal Boards. A major objective was 
a comprehensive test of supporting ADP systems, including Area Office 
terminals and files transfer. During FY 1994, National Headquarters 
will evaluate the effectiveness of the readiness programs, and further 
develop the concepts for future planning, training and exercise 
activities. Another readiness exercise is planned for FY 1995. 

The completion of the statutorily mandated Health Care Personnel 
Delivery System (HCPDS) has improved the Agency's mobilization 
capability. The one-step, combined examination and induction ADP 
system and corresponding prototype forms and procedures have been 
completed. Proposed standby legislation is in a Department of Defense 
(DoD) Crisis Action Package for post-mobilization submission to the 
Congress. SSS now has a viable standby system for the emergency 
conscription of health care personnel. Fine tuning of this one-step 
system, and the development of follow-on components, remain ahead. 

On-time registration of all eligible men within 30 days of their 
18th birthday continues to be a primary goal of the Agency. 
Registration improvement efforts are targeted at 17-19 year old men 
to ensure that all men required to be registered have done so before 
the age of 20, the prime year of vulnerability in a future draft under 
present law. Registration awareness activities are conducted at local. 
State, regional, and national levels. Radio and television public 
service announcements (PSAs) developed under SSS direction, are 
distributed to English and Spanish TV and radio station throughout the 
country. These high quality PSAs have been well received by radio and 
television station public service directors and have received high 
play rates around the country. It is hoped that the Agency will be 
able to continue to fund high quality PSAs. Over the past several 
years, many State governors and local officials have issued 
proclamations supporting registration; and eighteen States have 
enacted "Solomon-type" and/or "Thurmond-type" legislation. This 
legislation requires that men register with SSS as a prerequisite for 
receiving State educational assistance or State employment. The 
Registration Reminder Mail-back Program continues to be an unqualified 
success with a return rate of 35 percent. The annual mailing to men 
on the DoD high school recruiting list also utilizes the mail-back 
postcard format. As a result of these efforts over 14 million men, 
who are currently ages 18 through 25, have registered. 

The increasing demand for services, coupled with limited 
resources, dictate the need to increase productivity through the use 
of new ADP technology and improved methods. A number of important 
initiatives were completed in FY 1992, and other new initiatives and 



60 



concepts are being reviewed and analyzed in a continuing effort to 
provide enhanced mobilization readiness, automated capabilities and 
efficiency to Agency staff. The development of the ADP portion of the 
registration, induction, and claims and appeals components of the 
HCPDS and the networking of Agency computers are examples of these 
initiatives. 

The FV 1992 and FY 1993 appropriations provided modest increases 
primarily for pay raises, inflation and relocation expenses. However, 
with these recent increases, SSS is still unable to fund fully the 
authorized number of Reserve Forces Officers. Nevertheless, the 
Agency will strive to perform its assigned mission over the near term 
by concentrating on its most critical tasks: registering young men 
between the ages of 18 through 25, and maintaining a high degree of 
mobilization readiness. 

Events of the last several years, such as the removal of the 
Berlin Wall and the promise of easing tensions in Eastern Europe, have 
raised the hopes of all Americans for the eventual triumph of 
democracy in those countries long plagued by totalitarian rule. 
However, the instability in those countries which formerly made up the 
Soviet Union and Russia itself; the proliferation of nuclear weapons 
and the continuing turmoil in the Middle East reaffirm that world 
peace is a highly fragile condition and our planet is still a very 
dangerous and uncertain place. The modest cost of maintaining a 
viable SSS is a small price to pay to demonstrate our resolve for 
peace, and to insure that the Nation has the means of quickly 
providing manpower to augment our Armed Forces should the need ever 
arise. To date, SSS has been able to maintain a viable mobilization 
readiness posture. It is more important than ever, as we reduce the 
strength of our volunteer force, the National Guard and the Reserves. 
This posture has been achieved through the implementation of various 
cost avoidance measures, such as the elimination of toll free 
telephone service, conversion to mail-back postcards, implementation 
of the U.S Postal Service's National Change of Address System for 
address verification, maximum use of advanced ADP technology, coupled 
with the careful management of our human resources. 



61 



SUMMARY OP PROGRAM COSTS 
(in thousands of dollars) 



FY 1993 





FY 1992 
Planned 


FY 1992 
Actual 


FY 1993 
Planned 


Current 

Estimate 


FY 1994 

Estimate 


FY 1995 
Estimate 


Mobilization Readiness 1/ 


6,414 


6, 717 


6,438 


7,005 


7,320 


7,570 


Registration 


2,339 


2,097 


2,427 


2,061 


2,117 


2,172 


Registration Improvement 


420 


449 


436 


387 


397 


407 


Compliance 


586 


465 


608 


634 


651 


668 


ADP 


1,596 


1,708 


1,674 


1,601 


1,644 


1,687 


Administration 2/ 
(Personnel Compensation 
and Related Costs) 


16,125 
(11,954) 


16,000 
(12,233) 


17,033 
(13,087) 


16,928 
(12,886) 


16,833 
(12,669) 


16,979 
(12,863) 



Total 



27,480 



27,436 



28,616 



28,616 



29,012 



29,483 



1/ Includes Reserve Force Officers salaries and benefits 

2/ Includes civilian and active duty salaries and benefits, overhead, 
expenses not directly attributable to the other five programs. 



and all 



62 



MOBILIZATION READINESS 

The principal peacetime mission of the Selective Service System 
(SSS) is to be prepared to provide manpower to the Armed Forces to 
ensure the Nation's security. Should Congress, by law, authorize and 
the President direct a return to conscription, SSS must be able to 
meet the manpower requirements of the Department of Defense (DoD) . 
Consequently, the Agency must be prepared to establish a nationwide 
structure of over 500 SSS offices, provide a fair and equitable claims 
adjudication process, without which the public would loss confidence 
in the system, and maintain an automated data processing system to 
issue orders, monitor claims processing, and store a data base of 
registrant records. Adequate personnel training, and the development 
and maintenance of the automated peacetime management systems are 
crucial to the ability of SSS to perform its mission. 

Registrant Information and Management System (RIMS) . As early 
as three days following a mobilization, SSS has the ability to 
schedule and order registrants for induction on a national basis 
through the Registrant Information and Management System (RIMS) . RIMS 
integrates the processing of registration, induction, and claims 
information through the use of automated data processing technology. 
Under this system, using registration information in the data base and 
applying the results of a lottery to establish the sequence in which 
men are to be selected, registrants are issued induction orders in the 
form of Western Union Mailgrams directing them to report to Military 
Entrance Processing Stations (MEPS) . Travel warrants are included 
with the registrants' orders to provide transportation to the MEPS. 
If a registrant files a claim for postponement of his induction or 
reclassification, his induction is delayed pending resolution of the 
claim. Each day the registrant data base would be updated with claims 
information and with the results of the MEPS examination and induction 
processing. 

The RIMS Manual, which is issued to all SSS elements, sets forth 
the procedures and instructions for operating the registrant 
processing system. Through periodic exercises and testing, 
opportunities for additional improvements and refinements in 
procedures and data systems are identified. System modifications are 
made and changes to the manual are prepared and published when 
appropriate. 

The SSS conducts a two-phase lottery exercise each year; Phase 
I, capsule-filling, drum-loading and sealing; and Phase II, the 
lottery drawing. Employees are trained in both phases. By providing 
training to its employees, SSS provides continuity and experienced 
professional personnel who can conduct either phase of the lottery 
exercise. 

The registrant processing system described above is designed for 
an emergency mobilization when large numbers of men are required for 
the Armed Forces in a short time. After the initial surge, a system 



63 



for steady-state processing would be implemented. Under this system, 
registrants would be examined at a MEPS several months in advance of 
their anticipated induction date. Registrants who are qualified for 
military service are given an opportunity to file a claim for 
deferment or exemption. Those who do not file, or whose claims are 
rejected, will form the pool of those available for military service. 
These procedures provide registrants greater certainty about the 
likelihood of being drafted and also allow for a more orderly 
scheduling of registrants to the MEPS. Operational procedures and 
forms have been prepared and the automated system programs have been 
tested. 

In an effort to further streamline office operations and minimize 
the possibility for error during registrant processing in a 
mobilization, SSS has designed, developed and tested a new office 
automation system, known as CATO (Computer Aided Training and 
Operations) . This "user friendly" system serves a dual function: 
through its Reference module, it provides basic information concerning 
registrant processing and refers the user to the appropriate portion 
of the procedures manuals. Through its Operations module, CATO will 
perform data entry, prepare and print appropriate letters and forms, 
and update the records of registrants ordered for induction. CATO 
replaced the Area Office Terminal System (AOTS) at the beginning of 
FY 1993. 

Alternative Service Program . This program affects those persons 
who have a conscientious objection to both combatant and noncombatant 
military training and service. The Military Selective Service Act 
(MSSA) recognizes and respects the status of those registrants who are 
conscientiously opposed to participation in military training and 
service, and authorized a man to fulfill his obligation to his country 
in a manner consistent with his beliefs. Once a conscientious 
objector's claim is approved by his Local Board, he is assigned to 
alternative service. The Alternative Service Program manager 
identifies eligible employers, places conscientious objectors in 
appropriate jobs, monitors their performance, oversees a structure of 
Civilian Review Boards which review job assignments when a 
conscientious objector alleges that his assignment violates his 
beliefs and certifies the satisfactory completion of the participant's 
obligations. 

The Alternative Service Program System (ASPS) is the automated 
system which monitors the processing status of Alternative Service 
Workers (ASWs) . It tracks the scheduling of job interviews and the 
placement of ASWs in a specific alternative service wcrk assignment. 
After the ASW is placed, his time and performance on the job are 
monitored. Changes in work assignments and time not on the job are 
tecorded. After completion of 24 months of alternative service the 
ASW is discharged and his record is returned to the RIMS data base. 

The automated ASPS design and programming are complete, and the 
enhancements and refinements to the system have made it more "user 



64 



friendly." The ASPS User's Guide, which instructs personnel in the 
operation of the automated system and how to enter transactions 
relating to a conscientious objector's performance, was completed in 
January 1992. The guide reflects enhancements and refinements to the 
ASPS. 

Procedures and instructions which guide personnel in the conduct 
of day-to-day operations of the Alternative Service Program are almost 
complete. These materials, when completed, will explain what the 
Alternative Service Program is, cite the rights, duties and 
responsibilities of ASWs, ASW employers, and the SSS. Upon completion 
in FY 1994, these procedural instructions will be incorporated into 
the RIMS. 

Health Care Personnel DeliverY System (HCPDS) . The 
post-mobilization HCPDS combined examination and induction system and 
procedures have been completed. This includes the supporting 
automated programs, standby draft legislation, a standby Presidential 
Proclamation, standby regulations, various prototype forms and 
computer-generated documents, and other materials. The HCPDS will 
provide the Nation with an emergency mechanism that could be 
implemented by Congress and the President to conscript persons with 
critical health skills. To the extent adequate numbers of volunteers 
are unavailable, conscription might become necessary to respond in a 
timely manner to a military emergency requiring the reconstitution and 
augmentation of the Armed Forces. Whatever reduced active and reserve 
military force levels and mix eventually result from world events, the 
HCPDS will be an important, low-cost component in the Nation's 
capability to reconstitute and augment the Armed Forces with health 
care personnel. 

Background . Section 10(h) of the Military Selective Service Act 
was amended by S 715 of P.L. 100-180, approved on December 4, 1987, 
to require SSS to develop a structure for the post-mobilization 
registration and classification of persons qualified for practice or 
employment in a health care occupation essential to the Armed Forces. 
DoD's 1988 mobilization requirements list over 60 health care 
specialties as potentially needed, and indicate that tens of thousands 
of these specialists might be required almost immediately, at the 
start of a major war, to care for wounded service members. 

Accomp 1 i shments Through FY 1991 . A broad concept was developed 
and informally coordinated with staff representatives of concerned 
Senate and House members and committees, the Assistant to the 
President for National Security Affairs, appropriate Federal agencies, 
interested health care associations, and several key military and 
civilian DoD officials. Media representatives also were briefed. The 
concept was published in The Federal Register in 1989 to ensure 
extensive public notice. The broad HCPDS concept met with widespread 
acceptance, indicative of concurrence with the Congressional 
determination that this standby system should be built to enhance 
medical readiness. The ADP system for one-step (combined) examination 



65 



and induction, key to responding to DoD's worst-case mobilization 
needs, was completed in January 1991. This system provides a 
capability which it is estimated will permit SSS to make first 
deliveries to DoD for examination and induction by M+42, assuming 
prompt passage of authorizing legislation. Although the one-step ADP 
system was ready, SSS did not have the capability to process deferment 
claims, which was dependent upon finalization of non-automated items, 
such as prototype forms and operational manual policies and 
procedures . 

EX 1992 Accomplishments . The major FY 1992 accomplishment was 
the drafting and staffing within SSS of detailed concepts on HCPDS 
special occupational deferments for health care personnel, such as 
"community essentiality"; a National Health Care Personnel Advisory 
Committee; and. State Health Care Personnel Advisory Committees. These 
elements were only broadly outlined in the concept paper published in 
The Federal Register. Other FY 1992 achievements included: 

• Revision of the standby draft Presidential Proclamation kept 
"on-the-shelf " at DoD to implement HCPDS. 

• Refinement of HCPDS ADP programs, such as the criteria for 
identifying duplicate health care registrant records. 

• Development of certain prototype HCPDS registration site 
materials, such as a poster and registration instructions. 

• Development of additional prototype HCPDS forms, such as the 
Health Care Registrant Change of Information Form. 

• Development of prototype situational letters, including both (1) 
letters automatically generated by computer programs for 
production on a laser-printer, and (2) standard paragraphs and 
sentences which may be called up from a menu on a computer 
terminal and tailored to respond to special situations and 
inquiries. 

• Providing DoD with informal suggestions for its HCPDS planning 
guidance to the Armed Forces, including draft revisions of both 
a DoD Instruction and an Army-sponsored Joint Regulation. 

• Refinement of logistical contingency plans to rapidly produce 
required HCPDS materials from prototypes and deliver them to 
approximately 34,000 post offices, as well as overseas 
Department of State sites and SSS office locations under an 
expanded operation. 

II 1331 Accomplishments Iq Date . The revised HCPDS concept with 
details on an essentiality occupational deferment for health care 
personnel; a National Health Care Personnel Advisory Committee; and. 
State Health Care Personnel Advisory Committees were coordinated with, 
and briefed to, the concerned Federal agencies in September and 



$6 



C'C-rit-ax, 1992. ?>-steji n':^if icat-ians, adiressi^-^g tie is.suas of dvial 
liaiilitv arid roiarjj-. ity a-ssej-.tially vere c^arlete'd ir. Jar.uar%' 15 93. 
£.irlv ir. l?93, tie rsviss-d co-osct vas rrrvidei ar;d triefe-d to 
ir.terasts-i r.salti c-ire 2SSOCiatic-5, i-.rludir.c the AJier i car. Xe-dical 
.Vssrciaticr. Aji'eriia- S\u-se5 Ass^c-ciati;- Xierica- Assc-ciaticr. cf 
.V-irsa A--.estJ-.stists , Aji'eri ca..-. Xssco:.atir- cf critical-Care Surses, 
Ajiiarica.- T'S.-t-al .Stsscciatirr. Aji'enra-.-. Cstscratiic A.ss:ciatir- 3-d 
A2»enr.a- Acideay c: Piysiciar. A5sistar.t3. It alsc vas prcvidei t: a 
re-re.se-~.tative c- tie .Kji<s^i:3j: .ifs-iicii }<svs ..-.icr. puili&r.e^ ar. 
artirla :- r.Z^ZS ir. rei.r%;ar%', 1552. SeiLair.ir.c trctcts"p-e tsms, 
;cn.rute-r-::e-r.s-rate-d letter-s , i>co.i:let.s a->d ;tj-.er 3tate.rials have bee.-. 
ievelrted . 

•^sjair.der ii Zi 155: . By t.ha sj-.d :f yarch. 1593, SSS 



rla-..s t; tjilish the revlse^d ar.c ex-pa.-.de-d HCPC; cc-:ett paper in T^e 
Ve-rsral .-icistsr. ~; 155; plar.5 als: call z:z fir.e tj_-.i-= HC^OS, a.->d 
•^he dev-el;cne_-.t tc tie exter.t pcssi-ls cf H3?rs frllrv— :n cc7tpcr.e_-.t-s. 
.Vlthc'.ich their cca.pleticr. vill r.ct p'S-mit SSS tc iiaJ';e first deliveries 
tc T'cr s.'-' sc-cr.sr t.-. = - H-4Z. these cc3Lpc.-.e.-.t.s vill rrsst^ 2 veil 
rr.L.-.ded a-d icre s-c"_ita-ble svsteii. HC?CS fcllcv-cr. ;r::p;.-.er.t.s 



• .1. tvc-step exajiir.at icr. ar.d i-dictir- systea --.der vhich 
rs-c istrar.t-S vculd ce crdersd fcr =-xa:iiir.aticr. c.".ly a.-.d. if fcjrid 

• .li cat-aiilitv z: 3ii;= zsa-.i-iful alternative ser^'ice vark 
a s s 1 crjt>e.r. t-S -:r ■e'ltr. care recistrar.ts fc'^~.d tc i« 
cc-scisr.ticcs cr:£rtrrs cppcsed tc all mlitary ser%-ice. 

• X healt-h ca.re re-cistraticr. cciLplia-ce systes, si-Hilar tc the 
c-jrrs-t cciirpliar.ee systeji fcr cer.eral rs-cistra-t-S , tc ider.tify 

• T'etailec sc-ecial rrcced-irss fcr exajii^-aticr. ar/d l-'ductic.-. cf 
c ■.■ er s aa s r s-c 1 s tr ar. t s . 

j-j 1554 ? 1 ar. s . ~i 1554 plajis call fcr fir.ali:ir;c ar./ :-::?rs 
fcllcv-cr. cc3tpc-er.t-s r.ct fir.lsh&d ir. 1553 a.-.d testi-a cf all HCrCS 
cc3ir'Cr.e.-t.s ard their i-terface vith ether SSS systexs. =y the e.->d cf 
TV ijji ir.i. :-s''':~z. the HCrCS vill ir-e i.ai-tair.e'd as a detailed 
c:rti-c = -r.' plar. . .Jklthc-ch the ccjtpleted HCTCS vill be 

' c.- -t..".e - s "s 1 f ' It vill 'C'€ C'sr ic-dical Iv revieved, ipdate-d, ard testsid 

5 ;.«j' i wanKa- Tralsjc; . There are tires t-res cf vclur.teer beard 
ae-nrers v.-.c p-articip.ate 1.-. arr.ual tralr.i-c. These are the Icoal, 
.i.rcaal i.".d Civiliar. Kaviev 5-card lejibers. Satic.-.vide these beards 
ccrstit-te a tctal cf 11 isr aithcri'ed p-csiticr-s. 



Tie I'Ccal Heard is rescc-.sicle fcr iLaJ«;ir.c decisicr.^ cc"cem.mg 
-a.-- =--»--= ..-.c .-.ave re-c-astsc c-.s cf the fi'.'s ■udrn'er.t-al claitts, as 



67 



veil as administrative claims that have been appealed from an Area 
Office. The District Appeal Boards (DAB) are responsible for 
reviewing appeals from the L/Ocal Boards. Civilian Review Boards (CRB) 
review claims of an ASVi who objects to his SSS job assigTiment based 
on his conscientious objector beliefs. 

Wewly appointed members are reqxiired to complete a 12 hour 
initial training course vhica provides basic instruction in their 
mobilization responsibilities. Thereafter, they participate annually 
in 4 r.cjrs of continuation or refresher training that enhances skills, 
provides instruction with respect to changes in policy and/or 
procei_res, and maintains individual readiness levels. Both initial 
and ccr.tmuation training are provided to Local and Appeal Board 
menJoers each training year. CRB members receive continuation training 
every other year. Eecause cf turnover, initial training for the CRB 
may be required in FY 1592 or FY 1994 to maintain readiness. 

In FY 1992, Local and Appeal Board training utilized refresher 
trai.ning focusing on mobilization timetables; postponements, 
deferments, and exemptions; use of the primary procedural manual; and 
a review of the file folder and forms. Ir. addition, training consisted 
of three role plays giving the board members the opportunity to 
function as a board, to review simxilated files, and" to interview 
pseudo registrants. Training was conducted by Reserve Force Officers. 
Karicnwide CRB training was not conducted in FY 1992. 

In FY 1593, Local and District Appeal Board training will focus 
on resource n-aterials, compensated employee functions, board 
functions, participants in a board meeting, and conduct cf a board 
meeting. Based on evaluation sheets received from board meobers and 
RFOs, in addition to comments from the Regions, some new training 
features will be introduced. The format of the training package vill 
include more detailed trainer instruction in an easy-to-use format. 
One of the three role play case files vill be an audio cassette. The 
cassette will describe a board interview of a registrant, and will 
highlight the duties cf a compensated employee and board conduct as 
described in the refrssner material. The CRB training, scheduled for 
F"Y 1593, will mccrtcrate both self-study and group training 
B-aterials. Group training will provide an opportunity to bring CRB 
maiL&ers together for hands-on training. 

FY 1994 training will be based on comments and recommendations 
frcn the Regions, the RFOs and the board members. Eased on past 
re:r-6sts, SSS plans to use the facilities prcvided by the Air Force 
videc productions unit at the Pentagon to produce a video of a board 
meeting. In FY 1994 training will be schedule for Local and Appeal 
board members only. In FY 1993 and FY 1994, board member training 
will be mccrporated with the mobilization and readiness exercises, 
as well as training for all CRB members. 

I6J Beaerve Torees Officers (RTOsi . The Reserve Forces Officers 
comprise ^.tttv Katicnal C-iard '>ASC-: and Reser-.'e Officers. The RFOs 

10 



68 



represent all Services of the Armed Forces to include the Coast Guard 
Reserve. RFOs assigned to the SSS play a vital role in the readiness 
posture of the Agency. Through them the SSS has a greater capability 
to carry out its goals and objectives in the event of a mobilization. 
The RFOs will open Area Offices and State Headquarters (SHQ) , and 
supplement Region (RHQ) and National Headquarters (NHQ) if 
conscription is reinstituted. To perform these mobilization 
activities extensive, continuous training is required. Each RFO has 
a mobilization assignment as an Area Office Manager (AOM) , NHQ support 
officer, SHQ support officer, RHQ support officer or MEPS Liaison 
Officer (MliO) . RFOs are required to know their mobilization 
assignment duties and to be cross trained in all other assignments. 
Also, during peacetime, the RFOs assist with registration improvement 
activities. 

RFO training consists of a series of Training Guidance Outlines 
(TGOs) studied during a Unit Training Assembly (UTA) training session 
at the drill site. Of the 37 TGOs currently in use, the 23 having the 
highest priority are used to train Area Office Managers/Alternative 
Service Officers. The TGOs are scheduled for review and rewrite in 
FY 1993. In October 1992, the automated system changed to CATO from 
AOTS, requiring added emphasis in training. The RFOs participated in 
a MOBEX in March 1993 which simulated a national emergency requiring 
mobilization and activation of an Area Office and SHQ office. This 
was the first time the RFOs and the Recruiter Augmentees (RAs) used 
the CATO system. 

To assure that SSS has well trained officers, an AOM 
Certification Examination is given every three years to all RFOs. A 
new examination was given to RFOs by NHQ during the FY 1992 regional 
conferences. RFOs are expected to know board member and Recruiter 
Augnentee functions and responsibilities and are required to assist 
in the training of these personnel. Training for FY 1992 included 
training of trainers to bring all RFOs up-to-date on the procedures 
of presenting initial board member training. In addition, many of the 
training techniques used in board member continuation training were 
reviewed. 

FY 1994 will be a training year focusing on reviewing areas that 
were noted during MOBEX 93 as requiring extra emphasis. FY 1995 will 
focus again on a readiness exercise to test personnel knowledge and 
the effectiveness of the training programs. 

Recruiter Augmentee Training . There are a total of 1,500 ARNG 
RAs authorized nationwide. It will be their responsibility to assist 
the Area Office Managers (AOMs) with the daily administrative 
activities of the Area Office. Their training consists of practice 
with the policy and procedure manuals, registrant processing, and 
computer generated activities. They will also assist in training 
civilian new-hires to t20ce over these activities. 



11 



69 



In FY 1992, RA training consisted of a 12-hour block of 
instruction. RFOs present this training to all ARNG RAs in each State. 
In FY 1993, the RAs participated in a 2-day Area Office mobilization 
exercise to test their readiness and the effectiveness of past 
training. In FY 1994, another 12-hour course will be developed 
utilizing the results gained from the mobilization exercise to 
highlight any areas requiring additional training emphasis. 

For newly appointed RAs having no previous SSS training, a 
self -study booklet has been created. The FY 1992 12-hour training 
course incorporates the information in the self-study book, which 
provides initial training, as well as refresher training to all RAs. 
The self-study booklet is primarily used during years the Area Office 
mobilization exercise is given to familiarize the newly appointed RAs 
with the SSS prior to their first experience as an augmentee. RAs 
participation in FY 1993 was through a readiness exercise. The 
exercise is held every other year. 

State Director Training . The 56 State Directors are recommended 
by the Governors of their respective States and Territories and 
appointed by the Director of Selective Service. Currently, State 
Directors are intermittent employees who act as liaison between the 
SSS and the political entities of their respective States. They 
assist the Region Directors with recruitment of board members and 
conduct of the registration improvement programs within their States. 
Upon mobilization they are required to establish and manage a State 
Headquarters, recruit compensated personnel, maintain the political 
liaison, and oversee their respective State Area Offices and 
Alternative Service Offices. 

State Directors must attend annual training to maintain knowledge 
in the policies and procedures of the SSS. Their training consists 
of participation in SHQ mobilization exercises which alternate every 
other year with formal blocks of training presented by the Region 
Headquarters. FY 1992 was the first year in which formal training was 
presented by the Regions. To date, this training has been successful 
in pinpointing subjects that need reinforcement in future training. 

State Directors participated in the mobilization exercise for the 
SHQ in FY 1993. The extent of the FY 1994 training will be based on 
the evaluation and analysis of the FY 1992 training and the FY 1993 
mobilization exercise. FY 1995 training emphasis will involve a 
readiness exercise to monitor and analyze State Directors' ability to 
perform their assigned tasks in the event of either a national 
emergency or a graduated mobilization response. 

Readiness Exercises . This Agency is required to maintain the 
capability to respond to a call for manpower for the Armed Forces in 
the event of a national emergency. To sustain and enhance this 
capability, the plans, policies and procedures are tested and 
exercised through a series on intra-Agency mobilization exercises. 
These exercises evaluate the readiness of the standby manpower assets, 

12 



70 



including Reserve Forces, Board Members, and State Directors to 
conduct operations at emergency locations. 

During FY 1992, the lessons learned through past exercises were 
evaluated, and a concept of operations developed for an Agency 
readiness exercise which was conducted in March 1993. This exercise 
tested the effectiveness of updated plans and training materials as 
well as a newly developed automated data processing system for the 
Area Offices. 

The readiness exercise for FY 1993 included a full-scale, 
nationwide preparedness test of the entire SSS. The exercise was held 
during the first weekend in March, and involved virtually all of the 
RFOs, RAs, and selected Local and Appeal Board members. A major 
objective of this exercise was a comprehensive test of supporting ADP 
systems. Area Office terminals and the file transfer system. The 
activity was structured to complete a significant amount of the total 
annual training and exercise requirements at one time to conserve 
critical resources. 

During FY 1993, National Headquarters conducted a series of staff 
assistance visits to the Region Headquarters to evaluate the 
effectiveness of the readiness programs, and develop further the 
concepts for future planning, training and exercise activities. The 
contemporary operational requirements were examined in order to 
posture the Agency for it's future role in national emergency 
preparedness . 

In FY 1994, the concept of operations for a nationwide readiness 
exercise will be developed for the contemporary operational 
requirements. This exercise will test the effectiveness of the 
graduated response plans and training materials, and include the 
lessons learned from MOBEX-93. A final exercise plan and materials 
will be finalized during a joint exercise/training conference in the 
Washington, D.C. area. 

Readiness exercises contribute significantly to Agency program 
evaluation and preparedness; therefore, it is vital that the Selective 
Service System conducts readiness exercise programs regularly. The 
Agency will continue to ensure the maximum utilization of resources 
by combining the exercises with board member continuation training and 
the visits of RFOs to assigned mobilization sites. 



13 



71 



REGISTRATION 

Selective Service System (SSS) registration is a straightforward 
and vital contribution to the maintenance of our Nation's defense and 
freedom. To help preserve our freedom for future generations, our 
Nation's men have the obligation to register within 30 days of 
reaching age 18. 

The SSS registration program ensures that the Agency can meet 
Department of Defense (DoD) manpower requirements if Congress 
authorizes, and the President directs inductions. Without a 
successful registration program in peacetime, SSS would have 
difficulty in meeting its statutory responsibility to provide manpower 
to the Armed Forces in a fair and timely manner. 

Maintaining an effective registration program for all men has 
been a major focus for the SSS since the reinstitution of registration 
in 1980. As of January 2, 1993, 96 percent of all men who were 
required to register had registered. This represents more than 14 
million men who are currently aged 18 through 25, and were born in the 
years 1968-1975. 

The registration process itself is simple and equitable. A man 
merely visits any U.S. Post Office (or any U.S. Embassy or Consular 
Office if he is in a foreign country) and completes a registration 
form by providing his name, address, date of birth, telephone number 
and social security number. He signs and dates the form in front of 
a postal clerk. The clerk sends the form to SSS's Data Management 
Center, where the information is put on file in a central computer. 
A written acknowledgement of his registration record, including his 
Selective Service number, is mailed to the registrant within 90 days 
of registering. Providing registration acknowledgment cards is 
important because of the requirement for proof of registration in 
connection with some job applications. Federal student financial aid 
programs, and some job training programs. 

Another registration process is a direct mail effort, the 
Registration Reminder Mail-back Program. It enables men to 
conveniently register by filling out the detachable Registration Form 
they receive in the mail and returning it to SSS for processing. 
Names of men about to turn 18 are obtained from State Motor Vehicles 
Departments, the DoD high school recruiting list, the Immigration and 
Naturalization Service and the Department of Education. The program 
generates more than 700,000 registrations yearly, averaging a 35 
percent return rate from the approximately two million Reminder 
Mail-back cards SSS sends to potential registrants each year. 



14 



72 



SOURCES OF REGISTRATIONS 


OrrHER 6.0% 




'^ 4.8%^^ 


1 


v27.0% «SM 


15.0%^ ^^^ 


|H Ik 


COUPLIANCB R ^^^^^^ 




^I^H li 


PSOQKAM ^^^^^^ 




IH 






Hj^^V... 


^^^^^^^^^^^^^^^^^^^^^Hi^^^pr PEU. OSAHT 


^^^^^^^^^^^^^^^^^^^^^^^Pr AFPLJCATICHS 


36.6% 


RZMINDBR CMtZM 


FY 1992 



Sources of Selectlva Service System Registrations 

In addition to registration by U.S. Postal Service (USPS) and 
registrations received through the Reminder Mail-back Program, 
registrations are received from several other sources, such as the 
Compliance Progreun (described later) , Pell Grant applicants, 
enlistments in the Armed Forces and other miscellaneous registration 
programs . 

In order for men to be fully informed about the registration 
requirement, a brochure entitled "Selective Service and You" is 
available at Post Offices and diplomatic posts. This brochure 
addresses the most commonly asked questions by men required to 
register and provides them with a telephone number and address to 
contact SSS should they require additional information. A more 
detailed information booklet entitled "Information for Registrants" 



15 



73 



is available upon request from the Consumer Information Center in 
Pueblo, Colorado. 

A major accomplishment in FY 1992 was the implementation of the 
USPS's National Change of Address System, an initiative to reduce 
operating expenses by significantly decreasing the volume of address 
verification postcards. Using the same selection criteria as in the 
old postcard program, a tape file of young men in prime age groups, 
including those with undeliverable addresses, is sent to a vendor 
licensed by the USPS. The records of registrants are matched against 
a data base containing all change of address notices filed at Post 
Offices in the United States by the public during the past 3 6 months. 
As matches against the file are processed, address updates are 
automatically applied. The program enhances the accuracy of more than 
two million registrants' records annually, thereby ensuring that draft 
eligible registrants can effectively be reached in the event of a 
national emergency. 



16 



74 



REQXSTRATIOH IMPR0V2MEMT 

To ensure fairness and equity during an induction. Selective 
Service System (SSS) must focus its efforts on encouraging men to 
register on time, thereby accomplishing the highest possible 
compliance rates among men of registration age. 

Some registration improvement activities are nationwide in scope, 
while others are tailored to address registration problems in a 
specific area of the country. The cooperation among Reserve Forces 
Officers (RFOs) and personnel at the National and Region Headquarters 
is an integral part of these programs. The Urban Area Registration 
Program (UARP) was designed to promote joint registration efforts 
between the SSS and organizations representing minority and 
disadvantaged youths. This program focuses public awareness of the 
registration requirement in areas where there is a high concentration 
of minority and disadvantaged youths, and helps to ensure that 
benefits which are contingent on SSS registration are not lost. 

Another initiative is a program to centralize the Agency's 
registrar program. The Centralized Registrar Program will consolidate 
the Agency's program activities with individuals who have agreed to 
act as uncompensated registrars in high schools and outreach 
organizations. The program will be conducted through mass mailings 
to targeted schools and organizations and is designed to help improve 
registration compliance in urban areas where registration improvement 
is needed most. 

Public Affairs . The Office of Public Affairs continued the 
general program to generate awareness, acceptance and understanding 
of the requirement for men turning 18 to register with the Selective 
Service System (SSS) . Public interest in the SSS peaked again during 
the political campaigns for the 1992 elections. The media and general 
public critically reviewed the SSS records of candidates at local. 
State, and national levels. It was readily apparent that this 
heightened the level of general awareness about the Selective Service 
System, the registration requirement, and the Agency's mobilization 
mission, but knowledge about specific rules, policies, and procedures 
was low. 

The increased attention helped make the Nation's young men keenly 
aware of the SSS and their obligation to register. The news coverage 
significantly enhanced the awareness previously attained and 
maintained through a Registration Improvement Progreua and public 
service announcement (PSAs) campaigns. 

Throughout FY 1992 Agency attention was focused on maintaining 
the draft mechanism in a high state of readiness, and reminding men 
about their obligation to register. Approximately 5,000 men reach 
their 18th birthday in this nation every day, and in the majority of 
the public high schools and communities throughout the nation, 
registering for the draft when a man turns 18 is just viewed as a rite 

17 



75 



of passage. The mainstream American male does it without too much 
thought, learning from his peers, his older brothers, or his parents, 
and he is reminded to do it through public service advertising and 
direct mail campaigns which effectively reach him. Yet, research 
conducted during the past five years indicates there is a continuing 
problem in reaching young men who are outside mainstream society, 
especially minority men in the inner cities. 

Based on the perceived problem of improving awareness and 
compliance in minority communities, a program was developed to 
determine the scope of the problem, and what could be some messages 
and methods of delivery which would communicate the registration 
requirement . 

The Urban Area Registration initiative consisted of a three part 
program. The first part was a formal review of available literature 
to determine who or what motivates Black, Hispanic and Asian- 
Americans. This phase also examined what others have found to be 
effective methods of conveying messages and ideas in reaching these 
audiences. The second phase consisted of qualitative research using 
12 separate focus groups of Blacks, Hispanics and Asian-American men, 
and influencers to each of these groups. A third part was a 
quantitative project involving the in-depth interview of nearly 900 
minority men in eight cities on both the east and west coasts. 

There are seven significant findings: 

• Low compliance is due primarily to limited knowledge about the 
requirement to register. Men do not register primarily because 
they do not understand the full scope of the requirement to do 
so. They are simply not fully aware of their obligation. 

• There is low appreciation for the importance of SSS. It simply 
is not an important element for young inner city minority men. 
Breaking the law is common place with these audiences. College 
loans, job training, or government jobs are viewed in the 
abstract and are not of immediate concern. They are concerned 
foremost with survival. 

• The reason for the lack of knowledge and appreciation is the 
lack of access. The inner city minority men are difficult to 
reach for any marketer. They are often on their own, not tied 
to institutions such as school, jobs, or even family. They have 
"dropped out" and just "hang." For marketers, there is little 
incentive to develop new media approaches to reach this audience 
because they have little discretionary income. 

• Access can be gained through the use of some traditional media. 
Outdoor and transit advertising has been used to target this 
audience. However, this method does not allow for much copy. 
Radio presents an opportunity and has continuously been used by 
SSS. In many cities one or two stations can reach the vast 

18 



76 



majority of the target audience. Newspapers were viewed as a 
source of information because they are the primary source of 
information on sports. 

• Non-traditional media must be used to gain access. User groups 
such as community centers, churches, and social service 
organizations can provide access to the target audience. But 
these organizations must be informed of the programs. 

• Family, especially mothers, play a more important role among low 
compliance groups than among mainstream audiences. Family 
members must be given the information needed to be able to 
influence the sons. 

• The SSS message must convey a personal benefit. Breaking the law 
is not persuasive, nor is the inability to get student loans, 
job training or government jobs. But the possibility they might 
lose some opportunities showed some promise as a message. Host 
of the young men feel they have a future and they want it to be 
open. They do not want to preclude any possibilities, 
especially if it is a simple thing they could do now. 

During the third and fourth quarters of FY 1993 a trial program 
will be conducted in the inner cities of Boston, New York, Baltimore, 
Philadelphia, and Washington, D.C. to specifically target inner city 
youth in an effort to raise registration compliance in these areas. 

This test program consists of the following factors: 

• Local radio personalities popular with this target group in each 
city reading public service announcements. 

• Movie theater screen announcements at theaters frequented by the 
target audience. 

• Outdoor public service advertising in the designated areas. 

• Transit card public service announcements on buses. 

• A public service awareness kit mailed to youth center directors, 
churches, co«irt facilities, and community leaders. The kit 
contains posters, Q's and A's, booklets specifically written for 
high school drop outs, registration cards, and a business reply 
card if more information is needed. 

In addition to the above, the nationwide general public awareness 
campaign continues. This consists of four elements in FY 1993. 

• A public awareness kit mailed to more than 24,000 high school 
principals in the country and to the Department of Defense 
Schools. This kit contains posters, copy for internal public 
address announcements, camera ready copy for newspapers, Q's and 

19 



77 



A's, and a mail back card to request a teaching block for civics 
classes. 

• A television public service announcement, provided in English 
and Spanish, to the television networks and about 1,000 stations 
throughout the country. In addition, the announcement will be 
provided to about 350 cable operators. 

• Seven radio public service announcements in English and Spanish 
provided to more than 7,000 radio stations throughout the 
country . 

• A theater slide program distributed to 1,900 screens in 61 
cities with emphasis on theaters serving urban young men. 

FY 1993 Accomplishments . 

• Distributed and evaluated a TV PSA, "Rituals," in both English 
and Spanish with added emphasis on placement with stations 
viewed by urban Blacks, Hispanics and Asians. This included 
targeted placement with cable stations and operators viewed by 
the target audience. 

• Produced, distributed and evaluated seven radio PSAs to include 
spots for Blacks, Hispanics, and the 18-year-old majority 
audience, and influencers of Blacks and Hispanics. Emphasis was 
on placement with stations listened to by urban Black and 
Hispanic audiences. 

• Produced and distributed a public awareness kit for high school 
males. The kit was distributed to some 24,000 high school 
principals. Kit included a business reply card by which 
additional copies of bulletin board posters could be added for 
the school systems. In addition, teaching handbooks regarding 
the Selective Service registration requirement can be ordered 
with this response card. 

• A PSA slide was placed in movie theaters for four weeks 
beginning December 12, 1992. The slide was shown in five 
northeastern cities on 246 screens. The slide was targeted for 
intercity Blacks and Hispanics. 

• Market research was completed on how to reach the minority 
audience of Blacks, Hispanics and Asians. A trial target 
program was initiated in five eastern cities to determine if 
such target programs can effectively raise registration 
statistics. 



20 



78 



FY 1994 and FY 1995 Plans . 

• Continuation of the TV and radio PSA programs with production of 
new spots to replace the existing spots as they reach their 
contract expiration dates. 

• Continuation of the high school awareness kit. 

• Continuation of the movie theater slide program with two flights 
of slides, one 8 -week summer flight, and one 4 -week holiday 
flight. 

• Continuation of a minority targeted media program as refined 
from the results of the minority program conducted during FY 
1993. 

• Exhibiting at one or more conventions of influencers such as 
the National Education Association. 



21 



79 



COMPLIANCE 

Only a small percentage of the 18 through 25 year old men who are 
required to register fail to comply with the law. However, failure 
to register is not a victimless crime. Each man who does not register 
increases the draft vulnerability of those who do register. 
Therefore, to ensure the highest degree of fairness to all men, 
Selective Service System (SSS) designed and implemented an automated 
compliance program in August 1982 which identifies possible 
nonregistrants and reminds them of their obligation to register. As 
of December 1992, over 4 million men have registered or have been 
confirmed as registered by this program. With the support of State 
and local governments and other Federal agencies, compliance 
activities continue to have a significant and positive national 
impact. 

Although SSS obtains names of possible nonregistrants from a 
variety of list sources, the primary list source is driver's license 
data. These data are obtained from almost every State and Territory 
of the United States, representing over 86 percent of the potential 
registrant records identified for processing. High school student 
lists and county voter records are also used in areas which have 
registration shortfalls. Other sources of data used in the compliance 
program are the Social Security Administration, the Department of 
Defense, the Department of Transportation, the Immigration and 
Naturalization Service, the Office of Personnel Management, the 
Department of Health and Hunan Services, the United States Postal 
Service (USPS) , and the Department of Education (DOE) . 

The lists or records of possible nonregistrants are matched by 
computer against the SSS registration file. The names of those 
already registered are dropped from the list. The remaining names are 
then matched with active-duty rolls of the Armed Forces (including the 
Coast Guard) to eliminate the names of those who are not required to 
register. The names remaining, after this second match, are sent a 
compliance letter which includes a registration form. Nonregistrants 
may register by completing and returning this form. If the man fails 
to register or to provide evidence that he is exempt from the 
registration requirement after additional mailings, his name is 
referred to the Department of Justice (DOJ) for investigation and 
possible prosecution for violation of the Military Selective Service 
Act (MSSA) . 

Computer matching programs are not the only activities performed 
in support of compliance. At both State and National levels, 
legislation has been passed which is designed to encourage 
registration compliance. The Solomon Amendment, (S 12 (f) of the 
Military Selective Service Act (50 App. U.S.C. 462 (f)), provides that 
a man of registration age must be in compliance with the MSSA to be 
eligible for Federal student aid pursuant to Title IV of the Higher 
Education Act. Male recipients of Pell Grant loans must be registered 
with SSS. If not registered, the applicant can request to be 

22 



80 



registered when he completes his application. The DOE provides the 
records of all Pell Grant applicants via a data link to SSS. 
Registration records are then established for those applicants who 
have requested that they be registered. This program has produced 
approximately 815,000 registrations from February 1989 through 
December 1992. The Thurmond Amendment (5 U.S.C. 3328) requires 
compliance with the MSSA for employment in the Executive branch of the 
Federal Government. The USPS also requires that its applicants be in 
compliance with the registration requirement as a condition of 
employment. To date, eighteen States have passed similar legislation 
affecting State employment and various education programs. 

The success of the compliance program requires continuing 
acquisition of new lists, with regular monitoring, analysis, and 
refinement, and positive action by the DOJ in the investigation and 
prosecution of nonregistrants. 

COMPLIANCE PROGRAM REGISTRATIONS 
from August 1982 through November 1992 



Record Sources 

Drivers License Lists . . 
Dept. of Education . . . 
Dept. of Veterans Affairs 
Immig. & Naturalization . 
High School Lists . . . . 

Voter Lists 

Armed Forces 

Other 

Total 





% Of Total 




Registered 




through the 




Compliance 


Registrations 


Proaram 


3,725,797 


85.87 


162,437 


3.74 


109,267 


2.52 


92,221 


2.13 


106,102 


2.44 


72,740 


1.68 


45,215 


1.04 


25.341 


0.58 


4,339,120 


100.00 



23 



81 



AOTOMATEO DATA PSOCB88IHO 

In the years since revitalization in 1980, automation has been 
the key factor contributing to the significant strides made in 
increasing productivity. Through the use of advanced automated data 
processing (ADP) technology. Selective Service System (SSS) has 
attained the ability to meet Department of Defense untrained manpower 
needs in an emergency, while reducing operating expenses, and 
providing Agency officials with timely data to assist in managing 
their administrative and operational activities. 

SSS's ADP facilities include the Data Management Center (DMC) and 
Joint Computer Center (JCC) , both located in Illinois, and the 
Alexandria Computer Center (ACC) located in Alexandria, Virginia. DMC 
provides the data entry, error correction, printing, mailing, 
logistics, and computer operations/progrsunming support required to 
process continuous registration. The JCC, established jointly by SSS 
and the United States Military Entrance Processing Command, handles 
the computer processing requirements of continuous registration. 
Programmers and analysts responsible for developing new systems and 
maintaining existing systems are located at the ACC, which also houses 
the computer used for in-house administrative applications. A 
telecommunications system connects all of these sites with Regional 
Headquarters (RHQ) and National Headquarters (NHQ) . 

In addition to the facilities otmed and operated by the Agency, 
several administrative functions are supported by other agencies' 
computer systems. The Department of the Interior provides payroll and 
personnel support through its PAY/PERS system. The Federal Emergency 
Management Agency provides accounting support through its automated 
Financial Accounting and Reporting System. The Agency will be 
converting to the Department of Interior's Federal Financial System 
(FFS) in May 1993. 

The increasing demand for services in the face of reduced funding 
dictates the need to increase productivity through the use of new ADP 
technology and improved methods. A number of Important initiatives 
were completed in FY 1992 and many new initiatives and concepts are 
being reviewed and analyzed in a continuing effort to provide enhanced 
automation capability and efficiency to Agency staff. 

FY 1992 Accomp 1 i shments . 

• A study was conducted to determine the feasibility of replacing 
the telephone system at the NHQ and ACC in amticipation of the 
consolidation to a common site. The old telephone system was 
antiquated and had limited capability. The decision was made to. 
proceed with the procurement in FY 1991 because of the enhanced 
flexibility, effectiveness and economy of the new telephone 
system. All of the equipment in the new system is modular and 
simple to relocate. The new system was installed in October 
1991. 

24 



82 



• 



The computer Aided Training -^,^P«»-,j,°- J^"^ Zf^^rlnl 
tVtl^llto.'lJTZ\J^t Sys"er (IXMS, .y our K--e -rc| 
0?f?cers (RFOs) and Recruiter Augmentees(RAs)xnperf^^^^^ 

mobilization functions. This ^y^^"" ^^^"^'P^i^ltlrs and providing 
by -toBatically generating forms andj^etters^^^ ^P^^^ ^^^^ 

^^fr^'v;:. LtWitfes of ^erolfice personnel. The system was 

Toipietei t^i^ "t^^ ^i^:!:,:^%tT.^i^iTLr..i''i^^^ 

^ll.^n^^^iyfterwarrxLrireS^br^-^^^^^^^ Managers and 
State Headquarters personnel in MOBEX '93. 

The current microcomputer based host was -i^i-^^^^rfntllrfted 
support the administrative applications Known |^\^J|teL within 
Mobilization information System (IMJS) . The su y ^ ^^^^^ 
IMIS have been ^nhanced and new systems an y^^^^^ 
Registration Compliance Online Statistics the Keg ^^y^ ^^ 
and Drill Pay Accounting System have been a^a 3^^^^^ 
currently worKing on th« -\\^;\^-,U\n'^ (PAMS) , 

fuforatel^ PrTcuSl; and^^ConLacting (APA<:^^^^^ and selected 
information from the ^^"^^"^^^^^^^^"^^"fnl^eale as systems are 
base has increased and "^l|""^^""?biUty studies on a text 
added. SSS IS also doing feasibility st: information 

retrieval system and the ^^f Pf =\°'^_?|;'||omputer host cannot 
management system. ^he original microcomput ^^^hine 

inquiries during peak periods ^ 1591. D^""'' /^^g^ ^ged 90 

^^'•^^ t'"of"thn^aiTa'birrinrt^m°e' causing many t^ receive busy 
percent of the avaiianie iine j-^ , ini-practive voice response 
signals. To improve ^^J^^^^^ '• ^" /"i^^^^Vn/ implemented in 
(IVR) system was purchased in l\^^^^^J\^^ p^rogrammed to 
February 1992. The ivk system -^ i-ouiries requesting 
provide automated response to routine i"^^^^^= information 
Verification of "^f "^„"^^°"i„/retsed nui^er of l\nes, busy 
requests. By providing *^ , ,^ fi f™inated Nearly 559,000 
signals have been virtually ^nt^naFV 1992 Many calls 
telephone calls were received ^^reaistrant, representing an 
involved inquiries for more than one registrant rep ^, 

overall telephone ^^^^^,^^1 in^iriL wire processed. Most 
addition, over 266,000 written i"^^''^^^ ^'^Ig^l^al and State 



25 



83 



aid for school. Of the vrritten inquiries, over 80,000 were 
received from JTPA offices and over 58,000 of these were 
processed via facsimile transmission and responded to within one 
day. 

• A Memorandum of Understanding was signed with the Social 
Security Administration (SSA) to provide the SSS with 
administrative and data entry support for processing Health Care 
Personnel Delivery System (HCPDS) registrations during a 
mobilization. In the event health care skills are needed, SSA 
would process 50% of the workload (1.75 million forms) 
associated with the registration process. An agreement with the 
Internal Revenue Service (IRS) for the other 50% of the workload 
is currently awaiting IRS concurrence. 

• The Mobilization Training Statistical System captures data from 
the annual training evaluation sheets completed by board 
members, RAs, and RFOs who support the SSS in event of 
mobilization. Mobilization readiness and training course 
effectiveness can then be analyzed and evaluated via the 
automated managerial reports provided by this system. The 
system was implemented in January 1992. Each year the system 
undergoes a complete reprogramming of both the data entry and 
report programs to match the evaluation sheets being used that 
training year. 

• In 1992, the Director established a scanning task group to 
investigate and evaluate optical and intelligent character 
recognition (OCR/ICR) technology to further streamline workload 
in the data entry area. The group recommended that, following 
a test of the OCR/ICR technology, an evaluation paper should be 
prepared on the test results. The test was conducted by a 
private contractor in September 1992, and the evaluation paper 
completed in October 1992. Based on the results of this 
evaluation, it was decided to perform a requirements analysis 
which was completed in January 1993. The requirements document, 
which dealt with OCR/ICR technology for the reminder mail-back 
card only, was forwarded to the procurement office for comments, 
planning, and for identification of vendors who may be able to 
meet SSS requirements. 

ZX 1993 Elans. • 

• Local Area Networks (LANS) will be installed in the RHQ to 
improve efficiency in the exchange of electronic mail, in the 
access to data base systems, and in file transfers. LANS will 
also permit the solving of the problem of the lack of disk 
storage capacity experienced by every Region. This project 
began in late FY 1992 and will be completed in the second 
quarter of FY 1993. 



26 



84 



The new CATO system will be enhanced to include the interface 
with the HCPDS. This project is scheduled for completion in the 
fourth quarter of FY 1993. 

The integrated Procurement and Accounting System will integrate 
the previously separate APACS, LSRS, and PAMS. The integration 
of APACS and the LSRS is scheduled for May 1993. The schedule 
?or the addition of the accounting interface is contingent on 
the SSS converting to the FFS in May 1993. 

The nurchase of text retrieval software for NHQ and RHQ file 
Saring on t^e wide area network will be evaluated The 
loftia?e provides indexes and key word searches for all 
documents and files. The evaluation is scheduled to be 
completed in June 1993. 

The IG has identified a requirement for a total integrated data 
base management system which would be needed during mobilization 
to enhancl"he management and operational effectiveness of the 
to enhance the mg ^^^^^ ^^^.^^ information on activities 

n"qre;s, and status and would incorporate procedures for 
™an!aement control and reporting within the data base system. 
AS envTsSned all regional sites will have access to the s^/«^«^ 
fir input of activity data; for on-line inquiry; for the 
aeneration of standard and special reports; and for data and 
?eport transfer functions. ?his system would help to ensure 
effective management and control of the total IG a'^tivities. A 
retirements analysis is being c^^^f^-^ted ^o deterinine a course 
of action to be taken in the development of this system. The 
analysis is scheduled for completion in September 1993. 

MORFX -93 was conducted in March 1993. The new CATO system was 
used and data transfer was tested. Over 400 *«.- °"^,«^„^"^ 
State Headquarters with the associated Local and District Appeal 
Boards participated in the exercise. 

TO improve the quality of computer generated ^°"^^P°""^|"f ^^^J 
add versatility to SSS letter production capabilities SSS will 
/-r,r,t-Tnii«. to convert from continuous form to cut-sheet printing 
ofle^ters? Approximately 100 letters will be reprogrammed for 
?he cut-sheet pointer and the cut-sheet inserting machine This 
will enable sIs to release the ten year old Government owned 
laser printer and two automatic inserting machines. 

<;<!<? is reviewing the cost effectiveness of automating the 
standard and o^'ptTonal Government forms used by the Agency. The 
0«ice of Resource Management surveyed users to -^ete^^i"^ «^f 

rceThrfo^r\a%" lit I^^^S^^^'t^^^^ 

automation process will be reevaluated. 

27 



85 



SSS is evaluating the feasibility of developing and providing 
computer based training to RFOs. The scheduled date for 
completion of the feasibility study is third quarter FY 1993. 

IMS is evaluating the cost effectiveness of purchasing and 
utilizing computer assisted software engineering (CASE) tools as 
a means of reducing costs. 



EX 1994 Elans. 



Contingent on the results of some of the aforementioned studies, 
Information Management (IM) will proceed with implementing the 
related initiatives. 

A redesign of the Alternative Service Program System (ASPS) is 
planned for completion in FY 1994. Mainframe and microcomputer 
programs and procedures will be modified to resemble the CATO 
System. ASPS will be %rritten in the same programming language 
as CATO and will contain databases on microcomputers at each 
Alternative Service Office and a database of all Alternative 
Service Workers on the mainframe. 

A requirements analysis and feasibility study will be conducted 
for a program wherein individual Region Registration Improvement 
Program reporting by RFO Detachments would be accomplished. At 
the end of each quarter, data would be compiled easily into the 
required quarterly report. Another benefit would be the 
capability to compare increased registration compliance in a 
certain area with initiatives performed in that particular area 
to indicate what had contributed to the increase. The study is 
scheduled for completion in the first quarter of FY 1994. 



n. 1995 Elans- 



It is expected that MOBEX '95 will be conducted during the 
fiscal year. During FY 1994, a concept of operations, ar. 
exercise plan and other materials will be developed and 
finalized for MOBEX '95. The involvement of IMS depends on the 
results of CATO play and file tr2msfer in MOBEX '93. 



28 



86 



AOMZMISTRATIOM 

The following are significant accomplishments in the area of 
Administration: 

£X 1992 Accomplishments. 

• The Selective Service System's (SSS) National Headquarters (NHQ) 
and its local computer center are housed at two separate sites. 
The NHQ is located in Washington, D.C., while the computer 
facility is in Alexandria, Virginia. To reduce overhead costs 
and enhance operational efficiency, it is best to consolidate 
the two components in a single facility. This is the approach 
which has been pursued on the Agency's behalf by the General 
Services Administration (GSA) . GSA is in the midst of a lease 
procurement effort and expects to identify the site shortly. 
Planning for the consolidation and relocation of the NHQ and the 
Alexandria Computer Center was a major undertaking for the 
Agency. The leases on both properties expired in January 1993 
and GSA took appropriate action to arrange for SSS to remain in 
the current locations. During FY 1992 the Agency worked through 
the lease procurement process hand-in-hand with the GSA. 

• During FY 1992, the Agency's senior management attended a three 
day training course designed to provide a strong base for the 
Agency's Total Quality Management (TQM) implementation effort. 
TQM awareness training was provided for non-senior management 
employees. The eight-hour training session was designed to 
introduce employees to the basic principles of TQM and prepare 
them for their future involvement in this effort. 

• In FY 1992, the Agency plan for a Drug-Free Workplace was 
revised. The revision, performed at the direction of the Office 
of National Drug Control Policy, brought the Agency plan in line 
with the most recent guidance on selection of Testing Designated 
Positions (TDPs) . TDPs are positions the incumbents of which 
are subject to periodic random drug testing. The new guidance 
reflected case law which has evolved over the past five years as 
Executive Order 12564, establishing the Federal Drug-Free 
Workplace was implemented and challenged in the courts. The 
review required an analysis of positions currently identified as 
TDPs and of other positions as well as to determine inclusion or 
exclusion under the new guidance. 

• The Agency undertook an initiative to recruit individuals with 
disabilities and to increase the number of employees from other 
under represented groups. Results of this initiative include an 
increase in the number of individuals with disabilities; an 
increase in minorities hired; and promotions and additional 
career opportunities for employees in two targeted groups: 
Hispanics and Asian Americans. 

29 



87 



• Implementation of the Reserve Forces alignment was completed, 
and the Agency Reserve Force is now in compliance with validated 
manpower requirements. Also, a major effort was directed toward 
filling lower-graded vacancies created by the realignment. 
Currently, 83% of funded Reserve Officer slots are either filled 
or have officers pending assignment to fill them. 

• During the second quarter of FY 1992, an optical scanning system 
was implemented within the Publications and Records Division. 
This system supports the Agency correspondence management 
program. As correspondence is received in the Agency, it is 
scanned, and the response is scanned following final action. 
This process has improved efficiency in responding to the public 
regarding the status of an inquiry and provides a method of 
creating a paper-free workplace. With documents being scanned 
on a WORM (write once read many) optical disk, SSS may be able 
to eliminate file cabinets and the expense of storing the hard 
copy of the document. 

• At the end of FY 1992, the Agency implemented Alternate Work 
Schedules for civilian employees, in addition to Flexitime which 
was already in place. Designed to afford employees an option 
for better balancing career and personal obligations, two 
programs. Compressed Work Schedule and Credit Hours, were tested 
for several weeks. Permanent programs were then devised and 
implemented, based on data collected during the tests. 

FY 1993 Accompl ishments . 

• The SSS continues to use state-of-the-art technology in 
information management and office automation for more effective 
Human Resources programs. As a participating agency in the 
Department of the Interior's PAY/PERS system, the Agency 
implemented the first portion of that new system which will 
eventually replace PAY/PERS. This portion automates the 
requests for personnel actions and should significantly reduce 
staff time and errors associated with processing these actions. 
Another improvement through automation was the development of a 
system to track and report civilian training data. Use of 
automation improves service to employees and allows Hunan 
Resources staff to meet increasing demands in personnel 
management. 

• In FY 1993, the Agency undertook a major initiative to update a 
number of its personnel policies. The subject areas included 
performance management, reduction-in-force, incentive awards, 
grievances, and EEO. This effort will continue into FY 1994 as 
new or revised policies are implemented, along with the 
necessary training and information for managers and employees. 

• Giant steps have been taken towards the implementation of TQM at 
the directorate level. Quality improvement teams have been 

30 



88 



formed to examine current processes and identify solutions to 
problems. As a group, the management team is engaged in the on- 
going review and discussion of books and articles about TQM and 
other management topics. As a result, much of the decision 
making mechanism is being adopted to replace hierarchy with 
employee collaboration and empowerment. 



FY 1993 Plans . 



With SSS's plans of consolidation and relocation underway, there 
are many expenses associated with a move of this magnitude which 
must be borne by the Agency. The existing leased space, at both 
locations, must be restored to its original condition. This 
requires, among other things, removal of the raised flooring and 
the special air conditioning and air handlers in the computer 
rooms, and removal of computer cabling. At the new location, 
there is likely to be a significant amount of site preparation 
required before the Agency can move in. This includes the 
installation of cabling for computers and telephones. The 
Agency must pay for the installation of a security system; the 
construction of conference and training rooms; and the 
preparation of the new computer rooms with all of their special 
security, power, temperature control, and fire protection 
requirements . 

The Agency is scheduled to convert to the Federal Financial 
System (FFS) in May. FFS is administered by the Department of 
the Interior's Bureau of Reclamation and meets the requirements 
of the Federal Manager's Financial Integrity Act (FMFIA) and 
General Accounting Office (GAO) standards. The current 
accounting system is neither in compliance with the FMFIA nor 
does it meet GAO standards. 

Plans for civilian employees include arranging access to "skills 
clinics" to assist employees in developing capabilities for 
their current jobs or for possible career progression. While 
this concept may be easily implemented in larger agencies, it is 
a challenge for SSS. As a small agency, SSS must locate 
existing "skills clinics" to provide its employees a tailored 
program . 

As required by the United States Postal Service, the SSS will 
begin metering administrative mail effective October 1, 1993. 
With this new requirement comes the expense of purchasing and 
installing postal metering equipment agencywide. These costs 
will be absorbed within existing resources. 

The Agency's senior management is committed to the TQM training 
initiative. Additional staff will receive further TQM training 
in FY 1993. 



31 



89 



El 1994 Plans . 



The SSS is working towards implementing an automated system 
which will streamline and standardize the appointment of 
uncompensated Board Members. Currently being tested in two of 
the six Selective Service regions, this system automates all 
phases of Board Member personnel management. If this pilot is 
successful, the system could be expanded nationwide. It would 
save valuable staff time and provide better service to the more 
than 11,000 citizen volunteers. 

Automating the standard and optional forms used within our 
Agency through the fullest use of available technology will 
improve efficiency and productivity and potentially reduce 
paperwork. Automation is scheduled to begin in FY 1994. 



32 



90 



SELECTIVE SERVICE SYSTEM 

Federal Funds 

General and special funds: 

SALARIES AND EXPENSES 

For necessary expenses of the Selective Service System, including 
expenses of attendance at meetings and of training for uniformed 
personnel assigned to the Selective Service System, as authorized by 
law (5 U.S.C. 4101-4118) for civilian employees; and not to exceed 
$1,000 for official reception and representation expenses; 
[$28,616,000] $29,012,000: Provided, That during the current fiscal 
year, the President may exempt this appropriation from the provisions 
of 31 U.S.C. 1341, whenever he deems such action to be necessary in 
the interest of national defense: Provided further, That none of the 
funds appropriated by this Act may be expended for or in connection 
with the induction of any person into the Armed Forces of the United 
States. (Departments of Veterans Affairs and Housing and Urban 
Development, and Independent Agencies Appropriations Act, 1993.) 



33 



91 



SBI2CTIVE SERVICE SYSTEM 
SALARIES AND EXPENSES 

PROGRAM AND PINANCINO SCHEDULE 
(la thousands of dollars) 

rt 1992 PT 1993 PY 1994 PY 1995 
Identification code 90-0400-0-1-054 Actual Estimate Estimate Estimate 

Program by activities 

00.01 Total direct program 27,436 28,616 29,012 29,483 

01.01 Reimbursable program 20 20 20 

10.00 Total obligations 27,436 28,636 29,032 29,503 

Pinancing 

25.00 Unobligated balance expiring 44 



39.00 Budget authority (gross) 27,480 28,636 29,032 29,503 

Budget authority 

Current : 

40.00 Appropriation 27.480 28.616 29.012 29.483 

Permanent : 

68.00 Spending authority from 

offsetting collections (new) 20 20 20 

Relation of obligations to outlays: 

71.00 Total obligations 27,436 28,636 29,032 29,503 

72.40 Obligated balance, start of year 17,584 12,913 14,410 15,665 

74.40 Obligated balance, end of year -12,913 -14,410 -15,665 -16,958 

77.00 Adjustments in expired accounts -8.515 

87.00 Outlays (gross) 23,592 27,139 27,777 28,210 

Adjustments to budget authority and outlays: 

88.00 Deductions for offsetting collections: 

Trust funds -20 -20 -20 

89.00 Budget authority (net) 27,480 28,616 29,012 29,483 

90.00 Outlays (net) 23,592 27,119 27,757 28,190 



34 



92 



SELECTIVE SERVICE SYSTEM 
SALARIES AND EXPENSES 

OBJECT CLASSIFICATION 
(in thousands of dollars) 



Identification code 90-0400-0-1-054 

Personnel compensation: 

11.1 Full-time permanent positions 

11.3 Positions other than permanent 

11.5 Other personnel compensation 

11.8 Special personal services pymts 

11.9 Total personnel compensation 
12.1 Personnel benefits: civilian 
13.0 Benefits for former personnel 
21.0 Travel & transportation of persons 

22.0 Transportation of things 

23.1 Rental payments to GSA 

23.3 Communications, utilities, and 
miscellaneous charges 

24.0 Printing and reproduction 

25.1 Consultant services 

25.2 Other services 

26.0 Supplies and materials 

31.0 Equipment 

42.0 Insurance claims & indemnities 

99.0 Subtotal, direct obligations 

99.0 Reimbursable obligations 



FY 1992 


FY 1993 


FY 1994 


FY 1995 


Actual 


Estimate 


Estimate 


Estimate 


8,879 


9,143 


8,961 


9,109 


169 


165 


165 


170 


76 


96 


96 


99 


7,127 


7,248 


7,348 


7,5^9, 


16,251 


16,652 


16,570 


16,946 


1,827 


2,020 


1,985 


2,022 


20 


20 


20 


21 


570 


665 


683 


701 





2 


2 


2 


1,219 


1,293 


1,328 


1,363 


2,294 


2,277 


2,338 


2,399 


716 


689 


727 


746 





23 


23 


24 


3,746 


4,413 


4,605 


4,698 


327 


274 


281 


288 


463 


288 


450 


273 


3 











27,436 


28,616 


29,012 


29,493 





20 


20 


?0 



99.9 Total obligations 27,436 28,636 29,032 29,503 



35 



93 



SELECTIVB SERVICE SYSTEM 
SALARIES AND EXPENSES 



PERSONNEL SUMMARY 



PY 1992 PY 1993 PY 1994 PY 1995 

Identification code 90-0400-0-1-054 Actual E»tlm«t« Estimate Estimate 

Total number of full-time permanent 

positions: 283 280 276 272 

Total compensable workyears: 

Full-time equivalent employment 255 267 263 259 

Full-time equivalent of overtime 
and holiday hours 

Average ES salary 

Average GM/GS grade 

Average GH/GS salary 

Average salary of ungraded position 










1 




1 




1 


98 


600 


101 


800 


101 


800 


104 


243 


8. 


63 


8. 


63 


8. 


63 


8. 


63 


32 


764 


34 


730 


34 


730 


35 


564 


21 


684 


24 


063 


24 


063 


24 


841 



36 



94 



SELECTIVE SERVICE SYSTEM 
SALARIES AND EXPENSES 

OBJECT CLASSIFICATION COMPARISON 
(in thousands of dollars) 



Identification code 90-0400-0-1-054 

Personnel compensation: 
11.1 Full-time permanent positions 
11.3 Positions other than permanent 
11.5 Other personnel compensation 

11.8 Special personal services pymts 

11.9 Total personnel compensation 
12.1 Personnel benefits: civilian 
13.0 Benefits for former personnel 
21.0 Travel & transportation of persons 

22.0 Transportation of things 

23.1 Rental payments to GSA 

23.3 Communications, utilities, and 
miscellaneous charges 

24.0 Printing and reproduction 

25.1 Consultant services 

25.2 Other services 

26.0 Supplies and materials 

31.0 Equipment 

42.0 Insurance claims S indemnities 

99.0 Subtotal, direct obligations 

99.0 Reimbursable obligations 

99.9 Total obligations 



FY 1992 
Planned 


FY 1992 
Actual 


FY 1993 
Planned 


FY 1993 
Currant 

Estimate 


8,949 


8,879 


9,287 


9,143 


154 


169 


162 


165 


111 


76 


116 


96 


6,707 


7.127 


6.721 


i.ZM. 


15,921 


16,251 


16,286 


16,652 


1,858 


1,827 


1,923 


2,020 


40 


20 


40 


20 


619 


570 


665 


665 


8 





8 


2 


1,209 


1,219 


1,257 


1,293 


2,408 


2,294 


2,516 


2,277 


798 


716 


830 


689 











23 


4,131 


3,746 


4,584 


4,413 


338 


327 


351 


274 


150 


463 


156 


288 





3 








27,480 


27.436 


28.616 


28,63,6 





20 


20 


20 



27,436 27,500 28,636 28,636 



37 



95 



REPORT ON OBLIGATIONS FOR INFORMATION TECHNOLOGY SYSTEMS 
SELECTIVE SERVICE SYSTEM 
(in thousands of dollars) 



2. 



3. 





FY 1992 


FY 1993 


FY 1994 


Cacital Investment 

A. Purchase of hardware 

B. Purchase of software 

C. Site or facility 
Subtotal 


237 



237 


38 


_5fi 
88 


39 



39 


Personnel 








A. Compensation, benefits, and 
travel 

B. Workyears 
Subtotal 


4,406 

(1??) 
4,406 


4,604 
U30) 
4,604 


4,640 

(139) 
4,640 


EauiDinent rental, soace, anrt 








Other ODeratina cosl;s 





A. Lease of hardware 

B. Lease of software 

C. Space 

D. Supplies and other 
Subtotal 



Commercial servi cps 
A. ADPE time 

Voice communications 

Data communications 

Operations and maintenance 

Systems analysis, programming & 

design 

Studies and other 

Significant use of information 
technology 

Subtotal 



B. 
C. 
D. 

E. 

F. 
G. 



Interagency services 

A. Payments 

B. Offsetting collections 
Subtotal 

Intra- aqencv services 

A. Payments 

B. Offsetting collections 
Subtotal 



98 


101 


104 











506 


549 


564 


189 


237 


244 


793 


887 


912 


44 


50 


52 


83 


91 


93 


60 


79 


81 


199 


222 


228 











19 


25 


26 











405 


467 


480 


967 


1,077 


1,065 











967 


1,077 


1,065 











9 


9 















38 



67-798 O— 93- 



96 



REPORT ON OBLIGATIONS FOR INFORMATION TECHNOLOGY SYSTEMS 
SELECTIVE SERVICE SYSTEM 
(in thousands of dollars) 



Other services 

A. Payments 

B. Offsetting collections 



FY 1992 


FY 1993 


FY 1994 





















Subtotal 



Totals 

Total obligations 

Workyears 



6,808 
(122) 



7,123 
(130) 



7,136 
(130) 



39 



97 



Item: 



Obligations: 



SELECTIVE SERVICE SYSTEM 

Major Information Technology Acquisition Plans 
1993 - 1998 

(in thousands of dollars) 



Purchase of Hardware 

1993 1994 1995 1996 1997 1998 
237 38 39 40 41 42 



Description: Routine replacement cost of terminals, Keyboards, and 
modems in the outyears. 



Item: 

Obligations: 
Description: 

Item: 

Obligations: 
Description: 



Lease of Equipment 

1993 1994 1995 1996 1997 1998 

98 101 104 107 109 112 

Leasing of a laser for postcard production for ten 
months in FY 1991 and the continuation of the lease in 
the outyears. 

Commercial Services 

1993 1994 1995 1996 

405 467 480 492 



1997 
505 



1998 
517 



Routine on-going expenses 
telecominunications services. 



related to leased 
maintenance of ADP 



equipment and data entry services, if necessary. 



40 



98 



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REGISTRATION FORM - SSS FORM 1 (FRONT) 




Won (9 tall ■ogiQ fnei»dl toe m 1 iKOd SSS 



48 



106 



REGISTRATION FORM - SSS FORM 1 (BACK) 



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107 



ACKNOWLEDGEMENT POSTCARD - SSS FORM 3B (FRONT) 



Registration Change 
Form 



nCASI COUtCT «N> l*M tWMlT ISriltMATlOX U.LUW 



(XI -Hn WRfTt IN IMF ^»uve SP*l E 



SELECTIVE SERVICE NO 




DATE OF BIRTH 



TELEPHONE NUMBER 



LAST ACTION DATE 



CURRENT MAIIJNG ADDRESS 



PERMANENT ADDRESS 



NUMBER AND STREET 



NUMBER AND STREET 



OMB-)I4n-00Ul 

SSS Form 3B (Sep l**>i 



TODAYS DATE SIGNATTJREOF HECISTTIANT 

▼ TeuhcTCUMlmumiop tult only if chjuiga vc neccuvy ^ 



For tnfonnaiion atwui vour n^his and oblig:auons. and the claims and appeals process in efrca if induaions 

j/e auihonzfd. «ntc loCunsumer Inlonnaiion Center. Pueblo. CO 81009. (or a Ifcccopy of Informauon for Regisirams". 



▼ 


TEAR ON PERFORATION AND RETAIN THIS CARD FOR PROOF OF REGISTRATION t ^ 


^Q Registration Acknowledgment 


Selective Service System 


Selecuve Service 
Numba 


Dale ol Binh 


Social Secunty 
Number 


Phone 


Last Action Date 



Name and Cuireni Addms 



Peimaneni Address 



Repttrani s Signaiure 



SSSFvmJA 
Sep. 1993 




50 



108 



ACKNOWLEDGEMENT POSTCARD - SSS FORM 3B (BACK) 



SELECTIVE SERVICE SYSTEM 
P.O. BOX 94636 
Palatine. IL 60094-4636 



ZIP ♦ 4 PRESORTED 
POSTAGE & FEES PAID 
SELECTIVE SERVICE SYSTEM 
PERMIT NO.C-1 19 



ADDRESS CORRECTION REQUESTED 

NOm TO THE KECISnUNT 

>Vi bfi^nwn ^tkto^a^f'Ba unuU ts ken h ^tiBt a( roa n 



OFFICIAL BUSINESS 
PENALTY FOR PRIVATE USE $300 




MmI ■■ RfCISTVATION CHANCE FORM D ^kniM Sena a 



■tW<Milii|«»&SiQi^H 






Old " o 
auz S °- 

= -=« 
="0 



PLACE 

SELECTIVE SERVICE SYSTEM 

ADDRESS LABEL HERE 



I 



e 

< 



51 



109 



VERIFICATION POSTCARD - SSS FORM 3V (FRONT) 



For inTonrution jt>oui ^our riehu iind obligaiionj. jnd the claims and appeals process in elfeci if induciions 
jre auifiorizeO ■^rtu* lo tonsumer IrJurmation Lcnicr. Pueblo, CO 81009. for a free copy ol InfoiTniiiion 
for Registrants 



,.. REGISTRUION VERIFICATION i Selective Service Sysiem 


^^ieciive Service 
Njmbcr 


Dale or Birlh 


'^ociai Sccuniv , Phone 
Number a 

5 

1 
1 


Last Ai-iion Date 


Same and Current Address t Permaneni Address 

1 

o 

i 
1 


OMB-32-«WXX)3 1 Direcior 
SSS Form 3V (May 1990) ' 

1 






Tor here and reluni boODm half onlv il chanfCs are neccuarv • 




-^ t Registration Change 
■»"«« Form 

rUASECOUECT O^ ISCURUTT LNPDBMATION BXUIW 


DO NOT wtnt IS THE M^\ t SPACE 


SELECTIVE SERVICE NO, 


SOCWL SECURITY NO 


SEX j DATE OF BIRTH 

1 

! 


TELEPHONE NUMBER 



NAME 










LAST ACTION DATE 


CURRENT MAILING ADDRESS 


PERMANENT ADDRESS 


NUMBER AND STREET 


NUMBER AND STREET 


CITY 


STATE 


ZIP CODE 


CITY 


STATE ZIP CODE 



OMB-llMMBOl 

SSS Fonn )V iMi* I990i 



SIGNATURE OF RECISTRAT^T 



52 



no 



VERIFICATION POSTCARD - SSS FORM 3V (BACK) 



— •< - - 
aeg c = 

u2 -" 

^Z 



PLACE 

SELECTIVE SERVICE SYSTEM 

ADDRESS LABEL HERE 



o 



SELECTIVE SERVICE SYSTEM 

P.O. Box 4637 

North Suburban, IL 60197^4637 



ZIPt4 PRESORTED 
POSTAGE & FEES PAID 
SELECTIVE SERVICE SYSTEM 
PERMIT NaC-119 



\DDRESS CORRECTION REQUESTED 



OrnOAL BUSINESS 
PENALTV FOR PRIVATE USE i300 



NOnCZ n THE K CIST1ANT 






I 



r 



53 






Ill 



REMINDER POSTCARD - SSS FORM IM (FRONT) 




Selective Service System Registration Inlormalion Ottice 
SyO P O Box 94738. Palatine. IL 60094-4738 

OFFICIAL BUSINESS 

PENALTY FOR PRIVATE USE S300 

A reminder to 
YOUNG MEN! 

It's important that you read this message. 





SELECTIVE SERVICE SYSTEM 
Registration Form 

ne*0 PRtVACv ACT STATEMENT 
PLEASE PRINT CLEARLY 



D 

I 





DATE OF BIRTH 



Name oi Montn 



PRINT FULL LEGAL NAME 



- DO NOT WHITE IN THE ABOVE SPACE - 



ar MALE H 

C FEMALE WM 



SOCIAL SECURITY ACCOUNT NUMBER 



JR . II. III. etc 



CURRENT MAILING ADDRESS 



Numo«r ano Sueei 



Slate ex Fo>eign Coui^iry 



Apt or Room No 



ZIP CodA (Musi Ew Enieted) 



PERMANENT MAILING ADDRESS 



Numb«< and Streei 



Siate w f ote-gn CouniiY 



CURRENT TELEPHONE NUMBER 



I AFFIRM THE FOREGOING STATEMENTS ARE TRUE 



Signaiu'e o' Req-^fani 



Apt or Rooffi No 



ZIP Code (Musi M Entced) 



riMR Ano(nw;«l l?dfW»007 



112 



REMINDER POSTCARD - SSS FORM IH (MIDDLE) 

Men are required to re g ister with the 
Selective Service System within 30 da ys 
of reachin g their 18th birthda y. 



1. Why it's important 
to register. 

Through regiSiralion. our country 
mamiams a list of names and addresses 
of young men 18 through 25 years oi age 
for use in ihe event ol a moOiiization li is 
not a resumption of the draft 

2. The potential 
benefits. 

Federal and some State laws reguire 
registration-age men applying lor certain 
benefits (such as student financial aid. 
government employment, and )0b 



training) to be registered with Seteclive 
Service (except those determined by 
Selective Service to be exempt from the 
requirement) In addition to being subject 
to prosecution, lailure to register may 
cause you lo permanently forfeit eligibility 
for these benefits, as men cannot register 
after reaching age 26 

3. The potential 
penalties for not 
registering. 

Young men who are convicted of failure 
10 register may be fined up to S250.000. 
imprisoned (or up to live years, or both 



4. The quick, easy way 
to comply. 

If you have not registered, read (his 
mailer Then complete, attix proper 
postage, and mail the anached 
registration form 

If this mailer doesn t apply to you. please 
pass It on to a tnend or relative who may 
be required to register 

Act today. 

It's quick. It's easy. 

And it's the law. 



A Re g istration Reminder: 

Men who are age 18 through 25 are required to register if they have not already done so. 



1 . Wiihin 90 days after registering 
you should receive a registration 
acknowledgment from Selective Service 
which will provide you with a copy of your 
registration record SAFEGUARD THAT 
DOCUMENT since ii will serve as official 
prool of your registration. II you do not 
receive a registration acknowledgment 
within 90 days after registering, it is very 
imponani thai you write to the address 



below, or call 708-686-6888 to 
verify that your registration has 
been received. 



Selective Service System 
Registration Information Office 
P O Box 94638 
Palatine. IL 60094-4636 



2. Once you register, the law also 
reguires you to keep Selective Service 
informed of your address changes so mail 
can reach you without delay You can 
inform Selective Service of an address 
change by writing to the address 
mentioned in i*i. or you may go to any 
Post Office for a Change-ot-lnformation 
Form (SSS Form 2). till it out and mail il 
free of charge. 



How to complete this form: 



1 , Read the Privacy Act Statement 

2. Print all entries except your 
signature clearly m ink 

3. Print your date of birth m Block i 
Use a three-letter abbreviation tor 
the month and numerals lor the 
day and year (Example: OCT 29. 
1967) 

4. Check the correct box in Block 2 



O. II you have a Social Security 
Account Number, it is mandatory 
that you include it in Block 3 
Otherwise, leave this block blank. 

O. Print your full legal name in Block 
4 tn the order listed. Include any 
suffix (M. III. or Jr ). 

7. Print your current mailing address 
m Block S and include ZIP Code. 
55 
TEAR OFF THIS PORTION BEFORE MAILING 



8. Print your permanent mailing 
address in Block 6 and include ZIP 
Code If It IS the same as your 
current mailing address (Block 5), 
leave this block blank. 

9. Prmi your telephone number in 
Block 7 

1 0. Prin* today's date in Block 8 and 

sign your name 

1 1 , Tear off the Registration Form from 
this mailer, affix proper postage, 
and mail 

II I II 



113 



REMINDER POSTCARD - SSS FORM IM (BACK) 

How the Government uses this information 



PRIVACY ACT STATEMENT 

The Military Selective Service Acl and 
pursuant regulalior>s. and Ihe President's 
Proclamation on Registration require that 
you provide the indicated intormaiion, 
including your Social Security Account 
Number The principal purpose of the 
required information is to establish or 
verity your registration with (he Selective 
Service System. This information mi» be 
furnished to other government agencies 
for the stated purposes on a selective 
basis 

Department of Justice — for review and 
processing of suspected violations ot the 
Military Selective Service Act. or for 
perjury, and lor defense of civil action 
arising from administrative processing 
under such act- 

Oepadment of State & Immigration and 
Naturalization Service — lor collection 
and evaluation of data to determine a 
person's eligibility lor entry/re-entry to 
the United Stales and for United States 
citizenship. 



Department of Defense & US, Coast 
Guard — for exchange of data 
concernmg registration, classification, 
tnduction. and examination of registrants 
and lor identiltcation ol prospects lor 
recruiting. 

Department ol Labor — to assist veterans 
in need of data concerning reemployment 
rights and for determination ol eligibility 
tor beneltts under the Job Training 
Partnership Act. 

Department ol Education — lor 
determination ol eligibility for student 
financial assistance 

Office of Personnel Management & U.S 
Postal Service — lor determination ol 
eligibility lor employment. 

Department of Health and Human 
Services — for determining a person's 
proper Social Security Account Number 
and/or for location of lathers pursuant to 
the Child Support Enlorcement Act and 
lor determination of eligibility for health 
education assistance loans 



Stale and Local Governments — to 
provide data which may constitute 
evidence and laclMtate In the 
enforcement of state or local law. 

Alternative Service Employers — for 
exchange ol information with employers 
regarding a registrant who Is a 
conscientious objector lor the purpose of 
placement and supervision ol 
performance ol alternative service in lieu 
ol induction into military service. 

Genera! Public — Registrant's name. 
Selective Service Number, dale of birth, 
and classification. Military Selective 
Service Act. Section 6. 50 U.S.C. App. 456. 

Failure to provide the required 
information may violate the Military 
Selective Service Act. Conviction (or such 
a violation may result in imprisonment lor 
up to live years and/or a fine of not more 
than $250,000. 



TEAR THIS PORTION OFF BEFORE MAILING 



NATIONAL HEADQUARTERS 
SELECTIVE SERVICE SYSTEM 
WASHINGTON. D.C. 20435 



POSTAGE 
REQUIRED 

PLACE STAMP 
HERE 



SELECTIVE SERVICE SYSTEM 
P.O. BOX 94732 
PALATINE, IL 60094-4732 



56 



I.II..IIm.II...I.I,mI..I.I.,II...1..II...1.I.I.I.I 



114 




SELECTIVE SERVICE SYSTEM 

P.O. BCX <i73J 

NORTH SUBURBAN, IL 601»7-«733 

SELECTIVE SERVICE SYSTEM 

Ttl«phont.. .1-7 08-648-6888 

(DATE: ) 

«5065313R Cll 000001 *31-35-6054 

LINDSAY CALVIM JOHNSON 
ST 1 FALL BRANCH RD 
BLOUNTVULE, TH 37617 



Deal ni. JOHNSON: 

A computer catch using qovecnnent files has identified you as a can who aar be 
required to register with Selective Service, but u'ho say not have registered. 
Unless deterained by Selective Service to be execpt from the registration 
requirement, .^ederal lau requires nen to register uithin 30 days of their 18th 
birthday. The only conditions esenpting a person from this requirement ate listed 
in Section B of the enclosed form. 

Please complete and return the enclosed form as follows: 

SECTIOH A - To register, complete Section A. 

Please note that due to differences in name, date of birth, or other 
data in a can's record on one of the files ue use, u:e sometices send 
this letter to a nan viho has already registered. IF YOU HAVE ALREADY 
REGISTERED, CALL US AT 1-708-688-6888, AND HAVE THIS LETTER 
AND YOUR SELECTIVE SERVICE NUMBER AVAILABLE SO UE CAN CLEAR OUR 
RECORDS. 

SECTION B - If you believe you are cicDst from the requirement to zcgistei, 

explain uhy in Section B and SUBMIT THE REQUIRED PROOF. Selective 
Service uill then review youi claim and proof and sake a 
determination. If you are found to be cuizently execpt, no reply 
uill be sent to you 

PLEASE NOTE: Unless you have been exempt for the entire tin* since 
your 18th birthday, vou should register now even if you are 
currently in one of the categories designated by an asterisk in 
Section B of the enclosed form in otdei to ensure your eligibility 
for certain benefits and jcbs. Register by completing Section A. 

SECTION C - If you are unable to complete this form, another person should 
explain uhy in Section C. 

WITHIN 15 DAYS AFTER RECEIPT PLEASE COMPLETE. SIGN, AND RETURN THE ATTACHED FORM 
IN THE ENCLOSED ENVELOPE. Recesber : Unless you are found to be exempt from the 
registration requirement, YOUR REGISTRATION WITH SELECTIVE SERVICE IS REQUIRED BY 
LAW. 

IMPORTANT NOTE 

Federal lavs, and laws in some States, require nen applying for some benefits oz 
jobs (such as student financial aid. Federal employcent. certain State jobs, }ob 
training, etc.) to have complied uith the Selective Service registration 
requirecent when they uere of registration age in order to be eligible for those 
benefits or jobs. In addition to caking a can subject to prosecution, failure 
to register may cause hio to permanently forfeit eligibility for these benefits 
and jobs. 

Thank you for your cooperation. 

Sincerely, 



/^^J«i-^»^,r^:v.-^*i— 



.ROBERT U. GAMBINO 
Director 
Eaclosuzcs 

57 



Cll-AUO. 1, 11 



115 



SELECTIVE SERVICE SYSTEM 

P.O. BOX <f733 

^ORTH SUBU.RSAN, IL 60197-<i733 



SELECTIVE SERVICE SYSTE 



Telephone. . .1-708-688-6888 



M 



'^5065313R C20 000001 

LINDSAY CALVIN JOHNSON 

RT 1 FALL BRANCH RD 

3L0UNTVULE, TN 37617 



(DATE: 




) 



■iSl-JS-SOSii 



Dear Mr. JOHNSON: 




■ -■■i--»--— "c.ii. ana line. 

.egr^i^r:^rio.^';:?."?;?lt'^o°: r^l Ult^^ --"-tea nonreg.stra.ts, U you 
are e.e^pt iron the regxstr'aUon%e^S!?L'eat'"'"'' ' °' ^"""^^ Priof't?;!? 



you 




It you have a ,uestxon about registration. Please contact us at 



1-708-688-6888. 



IMPORTANT NOTE 




Enclosures 



Sincerely, 

ROBERT Ul. GAMBINO 
Director 



58 



C20-AUG. 1, 91 



116 




SELECTIVE SERVICE SYSTEM 

P.O. BOX *735 

NORTH SUBURBAN, IL 60197-«733 

SELECTIVE SERVICE SYSTEM 

Telephone. . . 1-7 08-688-6888 

(DATE: ) 

45065313R C50 000001 431-35-60S<> 

LINDSAY CALVIH JOHNSON 
RT 1 FALL BRANCH RD 
BLOUNTVILLE, TN 37617 



Deal nr. JOHNSON: 

Ue previously advised you of the statutory requirement to register uith the 
Selective Service Systeo. After at least tuo prior letters fron us, you have 
not registered, you have not provided proof that you are already registered, nor 
have you subnitted proof that you are exempt from the registration requirement. 

Accordingly, ue have sent your name to the Department of Justice and requested 
that you be prosecuted for failure to register as required by the Military 
Selective Service Act. The Baximum penalty for uillful failure to register is 
a 9250,008 fine, 5 years imprisonment, or both. 

You may register or confirm that you have already registered by completing and 
signing Section A of the enclosed form and returning it to us in the envelope 
provided. If you claim to be exempt from the registration requirement, complete 
and sign Section B of the form and return it to us uith the required proof. 
Write your Case Control Number, located belou the date of this letter, on any 
letter or separate material that you send to us. 

If rou have a question about registration, you may contact us at: 1-708-688-6888. 

IMPORTANT NOTE 

Federal laus, and laws in some States, require men applying for some benefits 
or jobs (such as student financial aid. Federal employment, certain State jobs, 
job training, etc.} to have complied uith the Selective Service registration 
requirement uhen they uere of registration age in order to be eligible for 
those benefits or jobs. In addition to makina a can subject to prosecution, 
failure to register may cause hin to permanently forfeit eligibility for these 
benefits and jobs. 

Sincerely, 



/€^i<:^jffijr^ — <i— 



ROBERT U. GAMBINO 
Director 
Enclosures 



59 
CSO-AUO. I, 91 



117 



'i31S5605<i-JOHN 
SELECTIVE SERVICE SYSTEM REGISTRATION STATUS FOJ^W Cll OTNO 

— ~— — ^— — — — (DATE: ) 

INSTRUCTIONS: CO NOT CUT SECTIONS APART. PLEASE PRINT CLEARLY. 

1. READ TVS PRIVACY ACT STATErTNT CN THE BACK OF THIS FCRPt. 

J. :CriPLETI/COi;RECT IDENTIFYING INFORHATICN IN ITEHS 1-7, AND SECTION A, B. OR C. AS APP^OPRIATI . 
J. SEND ONLr COPIES OF OOCUKENTS YOU USE AS PROOF. SINCE THESE C3CU«NTS HILL NOT BE RETURNED. 
4. RETURN ENTIRE FORM. COPIPLETEO AND SISNEO. IN THE ENCLOSED ENVELOPE WITHIN IS DATS OF RECEIPT 
to: selective SERVICE SYSTEtl 
P3 BCX '•633 
NORTH SUBURBAN. IL 60197-4633 

(I3ENTIFYING INFORMATION: COr:PLETE AND/OR CORRECT IF NECESSARY) 

I. DATE OF 5IRTX: 05-16-61 2. SEX: T.ALE 

— ii31-35-605<i 501 <i23268<i 

3. SOCIAL SECURITY HUtlBER: 4. TELEPHONE NO: 



LINDSAY CALVIN JOHNSON 
S. NA«! 



(FIRST) (MIOOLEl (UST) CJR, II, ETC.l 

6. CURRENT MAILINS A30RESS: 7. PERJIA-NEKT HAILINS ADDRESS: 

RT 1 FALL BRANCH RD 
BLOUNTVILLE, TN 37617 



SECTICH A-°£GISTP.ATICN: CHECK APPROPRIATE BOX BELOW. REVIEW ITEMS 1-7 ABOVE: ENTER niSSINS DATA; 
"'"~"~"~'^^~'"~~~''"""^~ CORRECT ANY PRE-PRIMTED INFCRHATION THAT IS IN ERROR. 

D REGISTER ME WITH SELECTIVE SERVICE. 

n I HAVE ALREADY REGISTERED. MY SELECTIVE SERVICE NUMBER IS - 



n I REGISTERED AT (CITY/STATE) IN (MONTH), 199 (YEAR) BUT 

KAVE LOST MY SE(;iSTlIATICN. 
I HERESY CERTIFY THAT THE INFOH.1ATI0N ABOVE IS ACCUIATE AND COMPLETE AND FIT IKTEMT IS TO BE REGISTERED. 

REGISTRANT'S SICHATURE: DATE: - 199- 



SECTION B-£XErpTION STATEriENT : BELOW ARE THE ONLY CONDITIONS EXEMPTINO A PERSON FROM THE 
■—'■'———— —'—'^—^-^— REGISTRATION RESUIREPIENT . IF YOU FEEL YOU ARE EXEMPT. PLACE AN X 

IN THE APPROPRIATE BCXCESI A.SD SLSMIT THE RERUIRED PROOF SO THAT UE MAT DECIDE WHETHER TO REMOVE 

YOLS NAME FROM QUI LIST OF POSSIBLE NOMIESISTIUNTS. 

D I AM NOT A MALE. (ATTACH COPY OF BIRTH CERTIFICATE OR SIMILAR OOCUMEHT) 

D I AM NOT AGE 18 THROUGH 25. (ATTACH COPY OF BIRTH CERTIFICATE OR SIMILAR DOCUMENT) 

kQ I AM CU.RRENTLY ON ACTIVE DUTY IN THE U.S. ARHED FORCES. INCLUDING THE U.S. COAST GUARD. OR AS A 

CCTMISSIOMED OFFICER IN THE PUBLIC HEALTH SERVICE OR NATIONAL OCEANIC AND ATMOSPHERIC AGENCY! OR ATTENDIN6 
A MIUTARY SERVICE ACADEMY (OTHER THAN MERCHANT MARINE ACADEMY I; OR ENROLUO IN AN OFFICER PROCUREKEMT 
PROGRAM AT THE CITADEL, NORTH 6ECRGIA COLLEGE. NORWICH UNIVERSITY. CR VIRGINIA MILITARY INSTITUTE. (ATTAO: 
COPY OF DD FORM <>, CR E(9UIVALENT, OR A UTTER FROM YOUR SCHOOL ATTESTING TO YOUR ENROLLMENT! 

n I AM A NON-IMMIGRANT ALIEN LAWFULLY ADMITTED IN THE UNITED STATES UNDER SECTION 101 lA) (IS) OF THE 
IMMISRATIOS ACT (VISA). (ATTACH COPY OF INS FORM 1-94, I-9SA. BO.ROER CROSSING DOCUMENT 1-185. 1-186. 
1-584, OR A TRUST TERRITORY I.D. ) 

I'D I AM CONFINED IN A D MEDICAL/MENTAL CR D PENAL INSTITLTTION. (ATTACH STAHME-fT SIS^CO BY AM 
INSTITUTION OFFICIAL GIVING NAME AhS ADDRESS OF FACILITY AND ESTIMATED RELEASE DATE) 

kD I AM INDEFINITELY CONFINED TO MY RESIDENCE FOR MEDICAL REASONS. (ATTACH STATEMENT SIGNED BY 
PARENT, GUARDIAN. OR DOCTOR BRIEFLY SPECIFYING INCAPACITATING CONDITION) 

I HEREBY CERTIFY THAT THE INFORMATION 

ABOVE IS ACCUIATE AND COMPUTE. SIGNATURE: DATE: - - 

• RESISTRATION IS NCtCTHEUSS PERMITTED. IT HILL HELP TOUR ELIGIBILITY FOR CERTAIN BENEFITS/JOBS. 



S£CTI2^: C-STAT£ME^T BY THIRD PARTY: TO BE COMPLETED BY ANOTHER PERSON IF ADDRESSEE IS UNABl 
~''""""'^-"~~^""'^^~'^^"~~^~~~"~~ TO COMPUTE THIS FORM. PLEASE PROVIDE THE FOLLOWING INFCRHATION 
SO THAT Ui MAY REMOVE THE ADDRESSEE'S NA.1E FROM CUR LIST OF POSSIBU NaNREGISTRANTS. 



EXPLAIN WHY YOU ARE PREPARING THIS FORM FOR THE ADDRESSEE:. 



PRINT YSia name: TELEPHOW NO.:. 



YOUR MAILIKS ACDRESS:^ . . 

I HEREBY CERTIFY THAT THE INFCRnATICN 

ABOVE IS ACCURATE AW COMPUTE. YOUR <T(tMtTII»P! DATE: - -^ 

•• •- ••" ' •' - *J13J605* 



Wednesday, March 31, 1993. 

THE AMERICAN BATTLE MONUMENTS COMMISSION 

WITNESSES 

COLONEL FREDERICK C. BADGER, EN, DIRECTOR OF ENGINEERING AND 

MAINTENENCE 
COLONEL CLAYTON L. MORAN, FA, DIRECTOR OF PERSONNEL AND 

ADMINISTRATION 
COLONEL WILLIAM E. RYAN, JR., ADA DIRECTOR OF OPERATIONS AND 

FINANCE 

Mr. Stokes. The committee will come to order. 

Fiscal year 1994 request for the American Battle Monuments 
Commission is $19,961,000, $143,000 more than the amount appro- 
priated in 1993. Of that amount, $1 million is included in the re- 
quest to offset currency exchange losses. 

Colonel Badger, we are pleased to have you and your associates 
here today to testify before our subcommittee. What we would like 
to have you do at this time is introduce your associates, then we 
will receive your opening statement. 

Col. Badger. Yes, sir. Mr. Chairman, on my right is Colonel 
Ryan. On my left is Colonel Moran, all members of the staff of the 
Commission. 

Mr. Stokes. We will place your entire testimony in the record at 
this point in time, and then you may proceed in any way that you 
would like. 

Summary of Opening Statement 

Col. Badger. Thank you, Mr. Chairman and members of the sub- 
committee for the opportunity to testify in support of the Commis- 
sion's fiscal year 1994 appropriations request. 

As you have copies of my prepared statement, and it will appear 
verbatim in the record, with your permission, I will summarize its 
content. 

Last summer we completed the Guadalcanal memorial honoring 
the servicemen who fought in the Guadalcanal campaign. Attend- 
ing were hundreds of veterans from that campaign. The memorial 
was a joint project of this Commission and the Guadalcanal Solo- 
mon Islands Memorial Foundation. 

As you will remember, legislation was enacted in late 1986 au- 
thorizing ABMC to establish a Korean War memorial here in the 
Nation's capital. Subsequently, approval of the Congress was ob- 
tained to locate the memorial in the mall area. A national design 
competition was held with the winning design receiving approval 
with reservations of the Commission of Fine Arts and the National 
Capital Planning Commission. 

After many changes and much discussion, approval of the design 
concept, without further reservations, was received last year. We 
expect to receive final design approval within the next few months. 

(119) 



120 

Site stabilization and installation of utilities will begin next month. 
The memorial should be completed by June of 1995. 

It is anticipated that our next commemorative project will be the 
erection of a World War II memorial here in Washington, D.C. 

This Commission's appropriation request for fiscal year 1994, as 
you mentioned, is $19,961,000, which is $143,000 more than the 
budget authority for the current year. It includes $1 million to 
offset currency fluctuation losses which have been running in 
excess of that amount for several years. 

This concludes my summary; we will be happy to respond to your 
questions. 

[The information follows:] 



121 



BEFORE THE APPROPRIATIONS SUBCOMMITTEE 

ON VETERANS AFFAIRS, HOUSING AND URBAN DEVELOPMENT 

AND INDEPENDENT AGENCIES 



Mr. Chairman and Members of the Subcommittee: 

Thank you for the opportunity to testify in support of the American Battle 
Monuments Commission's fiscal 1994 Appropriation Request. 

Last summer, ABMC completed the Guadalcanal American Memorial which is 
located on Skyline Drive overlooking Honiaria, Guadalcanal in the Solomon 
Islands. It honors those servicemen who lost their lives during the 
Guadalcanal Campaign. The memorial was a joint project of ABMC and the 
Guadalcanal/Solomon Islands War Memorial Foundation. It consists of an 
inscribed four foot square pylon of red calca granite rising twenty-four 
feet above its base and four radiating directional walls. Inscribed on 
these walls are descriptions of the major battles towards which they point, 
Savo Island where four major naval battles took place, "Iron Bottom Sound" 
named for the many ships that rest on its floor, Edson's ridge commonly 
called "Bloody Ridge" for the fierce fighting in defense of Henderson Field 
that took place there, and Mount Austen where infantry units engaged a 
heavily entrenched enemy. The memorial was dedicated on August 7 of last 
year. Attending the dedication were two members of this Commission who 
fought in that campaign and a member of the staff, approximately 300 
veterans of the 1st Marine Division and the Americal Division and other 
Marine Corps, Naval and Army veterans of the Campaign. General Raymond G. 
Davis, USMC(Ret) represented the President at the dedication. 

On October 28, 1986, Public Law 99-572 was enacted authorizing ABMC to 
establish a Korean War Veterans Memorial in the Nation's Capital utilizing 
funds obtained primarily through private contributions. Since then, 
legislation was sought and enacted authorizing erection of the memorial on 
the mall; a superb site for it was sought and obtained in Ash Woods 
directly across the reflecting pool from the Vietneun Memorial; at the 
request of the Korean War Veterans Memorial Advisory Board (KWVMAB), a 
national competition was held to obtain a design concept; and the 
architecture/engineering firm of Cooper/Lecky was employed to assist in 
obtaining approval of the winning design concept by the Commission of Fine 
Arts, the National Capital Planning Commission, and the Secretary of the 
Interior, as provided for in the Commemorative Works Act, Public Law 99- 
652. Simultaneously, a fund raising Ccunpaign was conducted to raise at 
least $15 million for the memorial, in addition to the $1 million which was 
authorized to be appropriated by P.L. 99-572. With the assistance of the 
KWVMAB, $7,766,917.10 has been raised in private contributions, $5,820,259 
has been raised from the sale of the Korean War commemorative coin, and 
$2,123,972.48 has been raised by investing available funds in government 
securities, for a total of $15,711,648.58. Among its other provisions, the 
Commemorative Works Act, provides 7 years from the date of enactment of a 
memorial's authorizing legislation to obtain a building permit from the 
Secretary of the Interior. That date for the Korean War Veterans Memorial, 
October 28, 1993, is rapidly approaching. In order for ABMC to obtain a 
building permit, the following conditions must be met: the site and design 
be acceptable to the approving authorities; knowledgeable persons qualified 



122 



in preservation and maintenance be consulted to determine the structural 
soundness and durzUiility of the commemorative work in order to assure that 
it meets high professional standards; contracts for construction and 
drawings of the commemorative work be submitted to the Secretary of the 
Interior; and sufficient funds be available to construct the memorial. As 
the Korean War Veterans Memorial is being erected with funds obtained 
primarily through private contributions, ten percent of the construction 
cost in addition to the construction cost itself must be made available to 
the Secretary of the Interior to help defray future maintenance and 
repairs. It is anticipated that all of these conditions will be met by 
October 28, 1993. Based on preliminary design approval, a contract was let 
in February of this year for Phase I of construction, which is soil 
stabilization and installation of underground utilities. The contractor 
will mobilize on site in March and should complete his work in 6 to 9 
months. The target date for dedication of the memorial is July 27, 1995, 
the 42d anniversary of the signing of the cease fire. 

Early this year, identical bills were introduced in the House and Senate 
authorizing ABMC to estiOslish a World War II memorial in the District of 
Columbia or its environs honoring members of the Armed Forces who served in 
World War II, and to commemorate the participation of the United States in 
that war. The memorial is to be funded by private contributions. Early 
passage of the legislation is anticipated. To help defray the cost of 
establishing the memorial, a World War II commemorative coin bill was 
enacted into law late in the last Congress. It requires the U.S. Treasury 
to mint 3 coins, a $5 gold piece, a $1 silver piece and a $.50 clad piece. 
There will be a surcharge of $35 on each gold piece, $8 on each silver 
piece and $2 on each clad piece. After the minting costs are recovered, 
the first $3 million in surcharges will go to the Normandy Foundation for a 
World War II memorial garden in Caen, France and the next $7,000,000 to 
ABMC for the World War II Memorial After that, the surcharges will be 
split monthly between the two organizations with 30% going to the Normandy 
Foundation and 70% to ABMC. If all of the coins are sold, the total value 
of the surcharges will be $22.5 million of which $15.75 million will go to 
the World War II Memorial Fund. 

In the past several years, ABMC's currency exchange losses have been 
averaging over $1 million a year. Losses last year were $1,170,000. 
ABMC's first quarter losses in the current year were $369,000. If they 
continue at this rate, currency exchange losses again will be well over $1 
million. 

This Commission's Appropriation Request for fiscal 1994 is $19,961,000, 
$143,000 more than the Budget Authority for the current year. $1 million 
is included in the request to offset currency exchange losses. 

This concludes my prepared statement. We will be pleased to respond to 
your questions. 



123 

KOREAN WAR VETERANS MEMORIAL 

Mr. Stokes. Thank you very much, Colonel Badger. 

You discussed the Korean War memorial progress in your open- 
ing statement. During last year's hearing, General Kelly indicated 
that the winning design had been approved by the Commission of 
Fine Arts, but he was concerned that the National Capital Plan- 
ning Commission may have had some problems with it. 

Do I take it that from your statement, those problems were 
worked out and that the winning design was approved? Or has 
something happened between then and now which altered that 
design in order to get approval? 

Col. Badger. Yes, sir, it has been approved. The primary concern 
facing the Fine Arts Commission was the number of the statues. 
Initially, 38 statues were planned. Subsequently, the number was 
reduced to 19, and finally to 16, which will be the actual number. 

And with the reduction to that number, we received approval of 
both the Commission of Fine Arts and the National Capital Plan- 
ning Commission. 

CURRENCY FLUCTUATION 

Mr. Stokes. Colonel let's review the bidding a little in connection 
with the currency fluctuation account. 

As you indicate, this account was originally conceived to take the 
risk out of currency fluctuations after an appropriation was made. 

You suggested last year that you expected the fiscal year 1992 
currency losses would come in somewhat better than was originally 
anticipated, at about $1 million; and that does appear to have oc- 
curred. Is that correct? 

Col. Badger. Yes, sir. 

Col. Ryan. It was $1,170,000. 

Mr. Stokes. Very close. 

Let me make sure that we have the numbers right. With the 
$500,000 that we appropriated to the currency fluctuation account 
in 1993, how much do you anticipate you will have unobligated at 
the end of this fiscal year? Is that $706,000? 

Col. Ryan. That would be close to it. 

Mr. Stokes. Do I understand that you are requesting $1 million 
for the currency fluctuation account in 1994 and that you antici- 
pate using roughly a million dollars so that the unobligated bal- 
ance at the end of 1994 is projected at roughly $700,000? 

Col. Ryan. Yes, sir. 

Mr. Stokes. All right. What assumption did you make^for the 
French franc in your budget preparation for 1994? 

Col. Ryan. That was 6.01 francs per dollar. 

deferred maintenance and improvements 

Mr. Stokes. Last year we appropriated $1 million for the purpose 
of reducing the backlog of deferred maintenance projects. Is most 
of that money spent under object class 25, contracts and services? 

Col. Badger. It will be. Object classes 25 and 32, yes, sir, which 
includes both improvements and repairs. 

Mr. Stokes. When we look at the justification prepared for 1993 
and the number for object class 25, which was $628,000, and com- 



124 

pare that to the 1993 column of this year's justifications, which car- 
ries the number of $1,323,000, it would appear that you did not use 
all of the $1 million provided for deferred maintenance for that 
purpose. 

Are we correct on that? 

Col. Badger. No, sir. The entire $1 million is definitely sched- 
uled. We have it set aside, and it will be in addition to the other 
projects planned for fiscal year 1993. We are keeping track of every 
one of those projects. 

Mr. Stokes. As I indicated earlier, you included a table in the 
hearing record last year which listed, by priority, the deferred 
projects that totaled $7,965,000. And even though we have provided 
a special million dollar increase for deferred maintenance, the 
backlog has apparently grown to $8,698,000 according to your justi- 
fications. 

So the bottom line is, we are not making any dent in this prob- 
lem, are we? 

Col. Badger. Not very much. 

We would like to correct that figure though. It has been revised 
down to $8.2 million. 

Mr. Stokes. So $8.2 instead of $8.6? 

reasons for increase in backlog 

Col. Badger. Yes. There is a $200,000 increase from last year. 
The reasons for the increase in deferred maintenance — even 
though we did have an additional million dollars — is the age of our 
structures and the fact that we learned recently that our overseas 
installations are subject to the Architectural Barriers Act. This 
means that any major modifications to our facilities must include 
provisions to make our facility accessible to the handicapped. We 
are studying this and slowly making it part of a list of projects. Be- 
cause of the handicapped requirements put on us, we expect the 
costs to rise. 

Mr. Stokes. Why don't you elaborate for a moment, Colonel? 

Col. Badger. Yes, Mr. Chairman. We added to our list of sched- 
uled projects for fiscal year 1993, which approximated $1 million, 
additional projects in the amount of $1 million. So now we are 
planning to complete nearly $2 million of projects in object classes 
25 and 32. 

Mr. Stokes. Can you give us a quick idea of how many of the 
projects, beginning with project number one on the priority list, 
have been started or are under way? 

And we are going to ask you, if you could, to give us a more com- 
plete listing for the record including a new deferred projects list of 
priority. 

[The information follows:] 



125 



Prior Canetery/Honoriat 

1 Aisne-Marne Cemetery 

2 Cantjridge Conetery 

3 Brittany Cemetery 
i Epinal Cemetery 

5 Meuse Argonne Cemetery 

6 Normandy Cemetery 

7 Meuse Argonne Cemetery 

8 Suresnes Cemetery 

9 Brookwood Cemetery 

10 Henri -Chapel te Cemetery 

11 Brest Memorial 

12 Sonne Cemetery 

13 Brookwood Cemetery 

14 Honolulu Memorial 

15 Oise-Aisne Cemetery 

16 Luxeinbourg Cemetery 

17 Rhone Cemetery 

18 Flanders Field Cemetery 

19 Ardennes Cemetery 

20 Henri -Chapel le Cemetery 

21 Netherlands Cemetery 

22 Ardennes Cemetery 

23 Oise-Aisne Cemetery 

24 Luxeirbourg Cemetery 

25 Aisne-Marne Cemetery 

26 Ardennes Cemetery 

27 Meuse Argonne Cemetery 

28 Normandy Cemetery 

29 Epinal Cemetery 

30 Oise-Aisne Cemetery 

31 Ardennes Cemetery 

32 Rhone Cemetery 

33 Suresnes Cemetery 

34 Cambridge Cemetery 

35 Cambridge Cemetery 

36 Lorraine Cemetery 

37 Luxembourg Cemetery 

38 Brittany Cemetery 

39 Ardennes Cemetery 

40 Luxentxxjrg Cemetery 

41 Normandy Cemetery 

42 Brittany Cemetery 

43 Lorraine Cemetery 

44 Brookwood Cemetery 

45 Ardennes Cemetery 

46 Saint Mihiel Cemetery 

47 Netherlands Cemetery 

48 Montfaucon Memorial 

49 Florence Cemetery 

50 Normandy Cemetery 

51 Montfaucon Memorial 

52 Canfcridge Cemetery 

53 Lorraine Cemetery 

54 Luxembourg Cemetery 

55 Corozal Cemetery 

56 Meuse Argonne Cemetery 

57 Montfaucon Memorial 

58 Netherlands Cemetery 

59 Rhone Cemetery 

60 Rhone Cemetery 

61 Rhone Cemetery 

62 Brittany CoKtery 

63 Netherlands Cemetery 

64 Rhone Cemetery 

65 Sonme Cemetery 

66 Florence Cemetery 

67 Normandy Cemetery 



UPDATED LIST OF DEFERRED PROJECTS 

Project 

Enclose Lower Room, Chapel Terrace 

Install Strom Uindows Asst Supt't Qtrs 

Drill New Deep Uell 

Replace Punp Station Punps and Pipes 

Rewire All Buildings 

Repair Beach Paths 

Install Sewer System, Visitors Building 

Repair Memorial Uood Ceiling 

Relevel Paths and Curbs 

Repair Colonnade Ceiling 

Resurface Memorial Terrace 

Replace Gutters, Visitors Bldg & Qtrc 

Relevel Headstone Beams 

Replace Deteriorated Panels, Honolulu 

Replace Gutters, Service Garage 

Rewire Chapel 

Rewire Memorial 

Rewire Quarters ( Visitors Building 

Rewire All Buildings 

Rewire All Buildings 

Rewire All Buildings 

Install Alarm, Both Quarters 

Restore Transformer Station 

Rewire Both Quarters 

Replace Gutter, Qtrs & Visitors Bldg 

Replace Cracked Memorial Uindows 

Replace Roof Tiles, All Buildings 

Replace Rolling Doors, Mechanic Uorkshop 

Replace Roof Tiles, All Buildings 

Repair Service Building Roof Tiles 

Repair Roofs, All Buildings 

Repair Roofs, Quarters t Service Bldg 

Repair Perimeter Fence, Phase I 

Repair Leak in Reflecting Pool 

Install Drainage arouvj Cemetery Plots 

Install Clorination System 

Resurface Paths, Memorial Area 

Replace Door, Asst Supt's Veranda 

Relevel Lawns arxl Install Drainage 

Replace Furnaces, Asst Supt Quarters 

Install Water Softener System 

Repair Visitors' Building Roof 

Replace Kitchen Cabinets, Asst Quarters 

Clean and Treat Visitors' Building 

Replace Casing Deep Uell #1 

Rehabilitate Memorial Electrical System 

Replace Fire Protection System 

Repair Vestibule Marble Panel 

Repave Asphalt Roads and Parking Lot 

Repair Uater Reservoirs 

Install Protective Panels 

Reconstruct Long Stairs Pavement 

Repair Memorial Uindow Bronze Frame 

Replace Chapel Uindow Frames 

Erect Marker to Honor Grenada Missing 

Rewire Marble Repair Shop 

Resurface Access Road 

Clean and Treat Memorial 

Repoint Wall of Missing 

Repair Retaining Uall and Fence 

Install Ventilation in Uall of Missing 

Repair Lower Exterior Ualls, Both Qtrs 

Rewire Both Quarters 

Re-stucco Main Uater Reservoir 

Modify Storm Drain, Service Area 

Clear River Banks of Undergrowth 

Install Drainage, Cemetery Plots 



Page: 1 



Amomt 


Cm Total 


8,000 


8,000 


16,000 


24,000 


200,000 


224,000 


60,000 


284,000 


40,000 


324,000 


18,000 


342,000 


8,000 


350,000 


20,000 


370,000 


27,000 


397,000 


35,000 


432,000 


20,000 


452,000 


32,000 


484,000 


10,000 


494,000 


450,000 


944,000 


10,000 


954,000 


10,000 


964,000 


10,000 


974,000 


10,000 


984,000 


20,000 


1,004,000 


20,000 




024,000 


20,000 




044,000 


3,100 




047,100 


8,000 




055,100 


10,000 




065,100 


5,000 




070,100 


10,000 




080,100 


30,000 




110,100 


5,000 




115,100 


30,000 




145,100 


12,000 




157,100 


18,000 




175,100 


15,000 




190,100 


50,000 




240,100 


6,500 




246,600 


20,000 




266,600 


5,000 




271,600 


55,000 




326,600 


1,900 




328,500 


60,000 




388,500 


6,000 




394,500 


20,000 




414,500 


10,000 




424,500 


5,000 




429,500 


20,000 




449,500 


6,000 




455,500 


15,000 




470,500 


20,000 




490,500 


4,000 




494,500 


82,000 




576,500 


40,000 




616,500 


5,000 




621,500 


12,000 




633,500 


12,000 




645,500 


15,000 




660,500 


10,000 




670,500 


5,000 




675,500 


9,000 




684,500 


99,000 




783,500 


9,000 




792,500 


20,000 




812,500 


9,000 




,821,500 


10,000 




,831,500 


10,000 




841,500 


10,000 




,851,500 


12,000 




,863,500 


4,000 




,867,500 


7,000 




,874,500 



126 



Prior Ccaetery/MoKrial 

68 North Africa Cemetery 

69 Mouse Argomc Cenetery 

70 Epinel Ccaetery 

71 Ardennes Ceaetery 

72 Noraandy Ceaetery 

73 Suresnes Ceaetery 
T> Epinal Ccaetery 

75 Lorraine Ceaetery 

76 Luxistiniirg Ccaetery 

77 Lorraine Ccaatery 

78 Lorraine Ceaetery 

79 Netherlands Ccaetery 

80 Epinal Ccaetery 

81 Flanders Field Ceowtcry 

82 Honolulu Mcaorial 

83 Brittany Ceaetery 
ti Brittany Ccaetery 

85 Ardennes Ccaetery 

86 Brookuood Ceaetery 

87 Sicily-Roae Ceaetery 

88 Lorraine Ceaetery 

89 Manila Ccaetery 

90 Ssaae Ceaetery 

91 Caabridge Ceaetery 

92 Brookuood Ceaetery 

93 Oiae-Aisne Ceaetery 

94 Ardennes Ceaetery 

95 Honolulu Mcaorial 

96 Noraandy Ceaetery 

97 Florence Ccaetery 

98 Suresnes Ceaetery 

99 Saint Mihiel Ceaetery 

100 Caabridge Ccaetery 

101 Luxeabourg Ceaetery 

102 Sooae Ceaetery 

103 Suresnes Ceaetery 

104 Soaie Ccaetery 

105 Brittany Ceaetery 

106 Sicily-Roae Ccaetery 

107 Brookwood Ccaetery 

108 Henri -Chapel le Ceaetery 

109 Lorraine Ceaetrey 

110 Brittany Ccaetery 

111 Chateau- Thierry 

112 Luxeateurg Ccaetery 

113 Netherlands Ccaetery 

114 Manila Ceaetery 

115 Chateau-Thierry 

116 Chateau-Thierry 

117 A i ana-Name Ccaetery 

118 Aianc-Mame Ceaetery 

119 Ai ana-Mama Ceaetery 

120 Luxeabourg Ccaetery 

121 Corozal Ceaetery 

122 Soane Ceaetery 

123 Corozal Ceaetery 

124 Aisne-Hame Ceaetery 

125 Ardennes Ceaetery 

126 Ardenne s Ceaetery 

127 North Africa Ccaetery 

128 Luxeabourg Ccaetery 

129 Suraanea Caaetary 

130 North Africa Ceaetery 

131 Manila Ceaetery 

132 Mausa Argonne Ceaetery 

133 North Africa Ceaetery 

134 Honolulu Meanrial 



UPDATED LIST OF DEFERRED PROJECTS Page: 2 

Project AaoiMtt Cua Total 

Replace Borkcn Curbstones 8,000 1,882,500 

Install Pool Uater Treataent 28,000 1,910,500 

Repair Ceaetery Pools 5,000 1,915,500 

Repair East Service Road Ditch 10,000 1,925,500 

Replace Chianeys, Both Quarters 5,000 1,930,500 

Relocate Gasoline Pmp 15,000 1,945,500 

Install Heating Systea, Exterior Toilets 4,000 1,949,500 

Insulate Toilet Buildir« 7,000 1,956,500 

Install Alans, Visitors Buildiiw t Qtrs 8,000 1,964,500 

Install Alara, Visitors Building I Otra 10,000 1,974,500 

Construct Additional Parking Lot 32,000 2,006,500 

Repair Bronze Statue Base 12,000 2,018,500 

Repair Flagpole Stone Base 18,000 2,036,500 

Replace Visitors Building Windows 8,000 2,044,500 

Install Vietnaa Mapa, Honolulu 150,000 2,194,500 

Replace Insulation, Visitors Building 6,000 2,200,500 

Install Stora Windows, Otrs I Vis. Bldg 9,000 2,209,500 

Install Stora Windows, Scpt'a Ouartera 8,000 2,217,500 

Install Stora Windows, Sipt's Quarters 4,000 2,221,500 

Replace Pviaping Station PtafM 40,000 2,261,500 

Replace Shuttera, Both Quarters 25,000 2.286,500 

Repair Leakit^ Roof, Visitors Building 25,000 2,311,500 

Install Viaitors Building Shutters 12,000 2,323,500 

Insulate Attics, Both Quarters 18,000 2,341,500 

Enclose Passageway froa Qtrs to Garage 4,000 2,345,500 

Repoint Mcaorial Rear Joints 8,000 2,353,500 

Install Puifi Rooa Ventilation 5,000 2,358,500 

Reset Grand Stairs, Honolulu 150,000 2,508,500 

Install Stora Windows, Both Quarters 18,000 2,526,500 

Stabilize Hill Overlooking Ceaetery 150.000 2,676,500 

Install Mcaorial Ventilation 9,000 2,685,500 

Replace Garage Doors 6,000 2,691,500 

Rehabilitate Attic, Supt* a Quarters 12,000 2,703,500 

Replace Intercoa Syatea 6,000 2,709,500 

Repair North East Chapel Wall 15,000 2,724,500 

Relcvel Headstone Beaas 45,000 2,769,500 

Repoint, Clean t Treat Mcaorial 45,000 2,814.500 

Repair Terrace Stone Slabs 10.000 2.824,500 

Upgrade Workers Facilities 5.000 2,829,500 

Rebuild Flagpole Stone Base 6,000 2,835,500 

Gild Eagles on Pylons 12,000 2,847,500 

Construct Ceiling in Garage 10,000 2,857,500 

Construct Workshop in Garage 16,000 2,873,500 

Install Electricity, 12,000 2,885,500 

Protect Battle Maps 25,000 2,910,500 

Repair Mcaorial Flagstone Steps 12,000 2,922,500 

Overlay Asphalt Roads 125,000 3,047,500 

Instl Telephone t Water 7,000 3,054,500 

Replace Windows t Grills 10,000 3,064,500 

Replace Steps to Chapel Terrace 9,000 3,073,500 

Reconstruct Main Entrance Paths 22,000 3,095,500 

Install Entrance Gate Curba 6,000 3,101,500 

Protect Mcaorial Door Panels 9,000 3.110,500 

laprova Crass Phase IV 35,000 3,145.500 

Rebronze Antique Green Featurca 8,000 3,153,500 

Convert Ch^Ml to Visitors Center 78,000 3,231,500 

Resurface Service Road 13,000 3,2U,500 

Regi Id Altar Cross 5,000 3,249,500 

Repolish Mcaorial Maps 8,000 3,257,500 

Retile Base of Colums at Mcaorial 35,000 3.292,500 

Re-enaoel Arrows on Battle Mapa 15,000 3,307,500 

Polish Mcaorial Interior Marble Walls 8,000 3,315,500 

Replant Oaacs at Caaetary 25,000 3,340,500 

Install Handicap Reap to Chapel 25,000 3.365,500 

Repair Curbatoncs, Chapel Road 7,000 3,372,500 

Install Fumacaa, Both Quarters 22,000 3,394,500 

Replace Circutatlr« Pu^>, Honolulu 5,000 3,399,500 



127 



UPDATED LIST OF DEFERRED PROJECTS 



Page: 3 



Prior Caietery/NaK>r<al 

135 Utah Beach MenorUl 

136 Meuia Argonnc Cowtcry 

137 Mcusc Argonne Coaetery 

138 Florence Ceowtery 

139 Lorraine Ceaetery 

140 Lorraine Ceaietery 

141 Flandcra Field Caiaetery 
U2 Suresnes Ceaetery 

U3 Honttec Moaorlat 

144 Suresnes Cemetery 

145 Polnte du Hoc Memorial 

146 Hontfaucon Memorial 

147 Utah Beach Memorial 

148 Henri -Chapel le Cemetery 

149 CairiM-idge Cemetery 

150 Ardenrws Cemetery 

151 Normandy Cemetery 

152 Nomandy Cemetery 

153 Meuse Argoraw Cemetery 

154 Netherlands Cemetery 

155 Manila Cemetery 

156 Normandy Cemetery 

157 Luxembourg Cemetery 

158 Epinal Cemetery 

159 Oise-Aisne Cemetery 

160 Uest Coast Memorial 

161 Brookuood Cemetery 

162 Henri -Chapelle Cemetery 

163 Pointe du Hoc Memorial 

164 Kenmel Memorial 

165 Cantigny Memorial 

166 Sonnepy Memorial 

167 Meuse Argonne Cemetery 

168 Corozal Cemetery 

169 Canbridge Cemetery 

170 Henri -Chapelle Ceawtery 

171 Sicily-Rcme Cemetery 

172 Brittany Cemetery 

173 Normandy Cemetery 

174 Lorraine Cemetery 

175 Suresnes Cemetery 

176 Henri -Chapelle Cemetery 

177 Brest Memorial 

178 Rhone Cemetery 

179 Normandy Cemetery 

180 Canbridge Cemetery 

181 Henri -Chapelle Cemetery 

182 Luxentwurg Cemetery 

183 Rhone Cemetery 

184 Epinal Cemetery 

185 Luxeirtxxirg Cemetery 

186 Ardennes Cemetery 

187 Sicily-Rome Cemetery 

188 Canbridge Cemetery 

189 Luxenbourg Cemetery 

190 Canbridge Cemetery 

191 Meuse Argonne Cemetery 

192 Meuse Argonne Cemetery 

193 Meuse Argonne Cemetery 

194 Henri -Chapelle Cemetery 

195 Suresnes Ceavtery 

196 Normandy Ceavtery 

197 Normandy Ceantery 

198 Noraand/ Cemetery 

199 Luxenbourg Cemetery 

200 Luxeatwurg Cemetery 

201 Meuse Argonne Ceaetery 



Project Amount Cum Total 

Resurface Esplanade 10,000 3,409,500 

Mov« Refectory Upstairs 8,000 3,417,500 

Repair Flagpole Stone Base 14,000 3,431,500 

Restore Memorial Fomtain Automatic Jets 5,000 3,436,500 

Repoint Neanrial Step* 18,000 3,454,500 

Repair Eaat Cemetery Fence 10,000 3,464,500 

Repair Flagpole Bricic Terrace 15,000 3,479,500 

Regl Id Main Entrance Gate 12,000 3,491,500 

Resurface Memorial Lands 15,000 3,506,500 

Repaint Flagpolea 8,000 3,514,500 

Install Exterior Lights 10.000 3,524,500 

Resurface Sidetullcs 10,000 3,534,500 

Inatall Six Stone Benches 6,000 3,540,500 

Construct Visitors Room and New Office 21,000 3,561,500 

Repair North Entrance Stone Uorli 20,000 3,581,500 

Resurface Service Roads 10,000 3,591,500 

Construct Top Soil Storage Shelter 10,000 3,601,500 

Resurface Road to Old Compost Area 8,000 3,609,500 

Extend Curbing, Nursery Road 6,000 3,615,500 

Resurface Perimeter Road 15,000 3,630,500 

Drill NcMUell 75,000 3,705,500 

Rebuild Path to East Gate 9,000 3,714,500 

Enclose Conpost Shed 7,000 3,721,500 

Enclose Section of Compost Shed 4,000 3,7231,500 

Resurface Service Area Uashracic 5,000 3,730,500 

Inscribe Tribute to USMM, Uest Coast Mem 5,000 3,735,500 

Enclose Conpost Shed 5,000 3,740,500 

Rehabilitate Public Toilets 18,000 3,758,500 

Install Perimeter Fence 20,000 3,778,500 

Repoint Memorial Terrace 9,000 3,787,500 

Replace Perimeter Fence 9,000 3,796,500 

Extend Parlcing Lot 5,000 3,801,500 

Resurface Uallcs East and Uest Pylons 8,000 3,809,500 

Replace Electric Service to Chapel 15,000 3,824,500 

Insulate Exterior Toilets 9,000 3,833,500 

Reconstruct Entrance Usll 15,000 3,848,500 

Install Water Filter Sys. for Sprinlclers 16,000 3,864,500 

Resurface Service Area 15,000 3,879,500 

Repair Memorial Maps 7,000 3,886,500 

Resurface Service Area 9,000 3,895,500 

Extend Service Area Platform 6,000 3,901,500 

Construct Parlcing Lot and Access Road 15,000 3,916,500 

Install Night Lighting 10,000 3,926,500 

Enlarge Entrance Parlcing Area 7,000 3,933,500 

Resurface Service Area 7,000 3,940,500 

Enclose Compost Shed 9.000 3,949,500 

Repace Southeast Perimeter Fence 17,000 3,966,500 

Install Grills, Entrance Gate 6,000 3,972,500 

Resurface Parlcing Area 16,000 3,988,500 

Renovate Bathroom, Assistant Supt's Qtrs 6,000 3,994,500 

Renovate Bathrooms, Both Quarters 12,000 4,006,500 

Improve Attics, Both Quarters 10,000 4,016,500 

Intstall Air Condirioning, Both Quarters 10,000 4,026,500 

Replace Floor Asst Supt's Quarters 5,000 4,031,500 

Replace Carpeting, Both Quarters 8,000 4,039,500 

Rehabilitate Superintendent's Attic 10.000 4,049,500 

Construct Garage, Both Quarters 20,000 4,069,500 

Renovate Bathroom, Asst's Quarters 10,000 4,079,500 

Paint Exterior, Visitors Bldg t Quarters 20,000 4,099,500 

Extend Refectory Building 15,000 4,114,500 

Clean and Treat Visitors Building 10.000 4.124.500 

Construct Garage. Both Quarters 18,000 4,142,500 

Install Wire Fence, Both Quarters 20,000 4,162,500 

Install Wire Fence around Visitors Bldg 7,000 4,169,500 

Insulate Exterior of Both Quarters 20,000 4,189,500 

Improve Attic, Assistant Sifit's Quarters 9,000 4,198,500 

Replace Telephone System 7,000 4,205,500 



67-798 O— 93- 



128 



Prior CoMtery /Memorial 

202 Utah Beach Memorial 

203 Manila Cenetery 

204 Pointe du Hoc Memorial 

205 Utah Beach Memorial 

206 Meuse Argonne Cemetery 

207 Canbridge Cemetery 

208 Epinal Cemetery 

209 Epinal Cemetery 

210 Epinal CeiKtery 

211 Sicily-Rome Cemetery 

212 Florence Cemetery 

213 Henri -Chapel le Cemetery 

214 Florence Cemetery 

215 Luxeirtwurg Cemetery 

216 Normnd/ Cemetery 

217 Lorraine Cemetery 

218 Suresnes Cemetery 

219 Rhone Cemetery 

220 Netherlands Cemetery 

221 Normandy Cemetery 

222 Sicily-Rome Cemetery 

223 Florence Cemetery 

224 Florence Cemetery 

225 Brest Memorial 

226 Brittany Cemetery 

227 Netherlands Cemetery 

228 Sooaepy Memorial 

229 Scome Cemetery 

230 Henri -Chapel le Cemetery 

231 Henri -Chapel le Cemetery 

232 Corozal Cemetery 

233 Normandy Cemetery 

234 Luxenbourg Cemetery 

235 Manila Cemetery 

236 Soane Cemetery 

237 Ardennes Cemetery 

238 Oise-Aisne Cemetery 

239 Suresnes Cemetery 

240 Pointe du Hoc Memorial 

241 Garches Office 

242 Pointe du Hoc Memorial 

243 Oise-Aisne Cemetery 

244 Netherlands Cemetery 

245 Suresnes Cemetery 

246 Chateau- Thierry 

247 Henri -Chapel le Cemetery 

248 Netherlands Cemetery 

249 Pointe du Hoc Memorial 

250 Meuse Argonne Cemetery 

251 Normandy Cemetery 

252 Normandy Cemetery 

253 Henri -Chapel le Cemetery 

254 Mexico City Cemetery 

255 Corozal Cemetery 

256 Mexico City Cenetery 

257 Manila Cemetery 

258 Oise-Aisne Cemetery 

259 Mani la Cemetery 

260 Ardennes Cemetery 

261 Ardenne s Ceaetery 

262 Brookwood Cemetery 

263 Brittany Cemetery 

264 Luxt^ourg Cemetery 

265 Norman d y Cemetery 

266 Saint Mihiel Cemetery 



UPDATED LIST OF DEFERRED PROJECTS 

Project Amount 

Install Sprinkler System 6,000 

Install Handicap Ranps at Hemicycle 78,000 

Pave Footpaths 20,000 

Rehabilitate Blockhouse 15,000 

Clean and Treat Memorial 60,000 

Clean and Treat Memorial 80,000 

Resurface Entrance Road 15,000 

Repair Perimeter Wall Coping 33,000 

Resurface Cemetery Paths 125,000 

Replace Metallic Fence with Stone Wall 60,000 

Install Furnace, Asst Salt's Quarters 12,000 

Resurface Roads and Paths 60,000 

Replace Rolling Doors, Garage 6,000 

Repair Meanrial Terrace 80,000 

Resurface Cemetery Paths 95,000 

Resurface Memorial Area Paths 55,000 

Resurface Cemetery Paths 50,000 

Construcy Wall in Front of Cemetery 60,000 

Resurface Court of Honor 65,000 

Install Access Road Curbing 55,000 
Install Foundation Drains Sipts Quarters 8,000 

Inprove Hill Drainage Ditch 35,000 

Replace Punps in Pimp Room 25,000 

Install Automatic Sprinkler 20,000 

Rehabilitate River Pulling Station 20,000 

Install Automatic Sprinkler System 140,000 

Install Automatic Sprinkler 50,000 

Install Automatic Sprinkler System 60,000 

Construct Northeast Service Road 40,000 

Install Automatic Sprinkler System 150,000 

Reinforce Cyclone Fence 45,000 

Repair Boundary Fence 50,000 

Replace Perimeter Fence 32,000 

Repaint Perimeter Fence 5,000 

Repaint Boundary Fence 90,000 

Extend Parking Area 40,000 

Replace BouvJary Fence 50,000 

Resurface Si^xrintendent's Driveway 35,000 

Construct Toilets w/ Sewage 80,000 

Construct S(4iply Warehouse 180,000 

Reconstruct Parking Area 40,000 

Replace Fillod Building 50,000 

Enlarge Visitors Building 32,000 

Extend Si43erintendent's Office 55,000 

Renovate Basement Rooas 35,000 

ConstrtKt New Reception Building 140,000 

Construct New Parking and Toilets 130,000 

Construct Si^iport Building 190,000 

Rehabilitate Quarters No. 3 80,000 

Install Video at Parking Lot 50,000 

Rehabilitate Old Compost Hanger 10,000 

Rebuild Storage Building Roof 60,000 

Replace Palms in Cemetery 9,000 

Reinforce Maintenance Building 35,000 

Replace Garage Doors 4,000 

Reline Uater Treatment Tanks 9,000 

laprove Service Area 100,000 

Convert Tenp Toilets into Office Space 25,000 

Rehabilitate Bathrooms, Both Quarters 13,000 

Install Automatic Sprinkler System 160,000 

Rehabilitate Staler intendent't Quarters 15,000 

Install Automatic Sprinkler System 150,000 

Install Automatic Sprinkler System 150,000 

Rewire Workshop 9,000 

Construct New Service Buildir^ 250,000 



Page: 4 

Cur Total 
4,211,500 
,289,500 
,309,500 
,324,500 
,384,500 
,464,500 
,479,500 
,512,500 
,637,500 
,697,500 
,709,500 
,769,500 
,775,500 
,855,500 
,950,500 
,005,500 
,055,500 
,115,500 
,180,500 
,235,500 
,243,500 
,278,500 
,303,500 
,323,500 
,343,500 
,483,500 
,533,500 
,593,500 
,633,500 
,783,500 
,828,500 
,878,500 
,910,500 
,915,500 
,005,500 
,045,500 
,095,500 
,130,500 
,210,500 
,390,500 
,430,500 
,480,500 
,512,500 
,567,500 
,602,500 
,742,500 
,872,500 
,062,500 
,142,500 
,192,500 
,202,500 
,262,500 
,271,500 
,306,500 
,310,500 
,319,500 
,419,500 
,444,500 
,457,500 
,617,500 
,632,500 
,782,500 
,932,500 
,941,500 
,191,500 



129 

Col. Badger. Of the $1 million, which we considered separately 
and are keeping a separate account of, we have obligated one third 
of that amount, $390,000 and disbursed nearly $200,000. 

I would have to take time to review the old priority listing to be 
able to tell you specifically which of those we have picked up. We 
will make a detailed listing of the projects that we have scheduled 
for the $1 million and place it in the record, sir. 

Mr. Stokes. Sure. 

And will you tell us how many you picked up from this list that 
is here; and then also over and above the $1 million, how many you 
picked up from the base? 

Col. Badger. If we have some-from the deferred list, sir? Yes, sir. 

Mr. Stokes. Thank you. 

[The information follows:] 



130 



PROJECTS ADDED TO FY 1993 TO REDOCE BACKLOG 



Prior Cemetery/Office Project 



Amount Status 



1 


Cambridge 


3 


Brittany 


4 


Luxembourg 


5 


Flanders Field 


7 


Lorraine 


8 


Brittany 


10 


Meuse Argonne 


83 


Florence 


89 


Honolulu 


93 


Florence 


100 


Lorraine 


101 


Lorraine 


102 


Mexico City 


103 


Manila 


141 


North Africa 


142 


Corozal 


167 


Manila 


183 


Sicily-Rome 


186 


Corozal 


203 


Paris Office 


219 


Manila 


243 


Meuse Argonne 


244 


Corozal 


248 


Manila 


271 


Meuse Argonne 




Cambridge 




Cambridge 




Meuse Argonne 




Honolulu 



Repair Leak in Reflecting Pool 

Rewire Memorial 

Repair Chimney, Superintendent's Qtrs 

Replace Quarters Furnace 

Install Heating System in Workshop 

Replace Pole Transformer 

Repair Bronze Door, Mountfaucon 

Clean 6 Treat Visitor's Building 

Repoint Memorial, Honolulu 

Replace Linoleum/Granite Visitors Bldg 

Replace Windows & Shutters, Both Qtrs 

Replace Storm Windows, Both Qtrs 

Repair Crypts 

Replace Deep Well Pump 

Replace Pumps in Pumphouse 

Install Intrusion Alarm 

Place Power Lines Underground 

Repair Dam & Install Water Filter System 

Reseal Roads 

Extend Parking & Improve Security 

Clean & Treat Memorial 

Install New Automatic Sprinkler System 

Improve Workers Dressing Area 

Repave Service Area 

Construct Access Road, Sommepy 

Relevel Wall of Missing Sidewalk • 

Reset Wall of Missing * 

Replace High Voltage Transformer * 

Construct Handicap Ramp at Memorial * 



6,500 
11,000 

7,123 

7,000 
27,000 

4,200 

12,000 

20,000 

105,000 

6,000 

8,000 
30,000 

6,000 
25,000 
78,056 

8,500 
15,000 
16,000 
20,000 
10,000 
129,000 
210,000 

8,000 
35,000 
20,000 
65,000 
29,456 
10,000 
77,100 



Complete 
Onderway 
Complete 
Complete 
Underway 
Complete 
Complete 

Underway 

Complete 
Complete 
Complete 
Underway 
Underway 
Underway 
Complete 

Underway 
Complete 
Complete 

Underway 
Complete 
Complete 
Underway 
Underway 
Underway 
Underway 



TOTAL 1,005,935 

* Emergency or Handicap Projects not on Backlog. 



131 



LOCAL NATIONAL COL INCREASES 



Mr. Stokes. On page 3 of the justifications, you make the point 
that cost of living increases for American Battle Monuments Com- 
mission employees average over $500,000 annually with most of 
those increases going to foreign national employees. 

You also note that, because supplemental appropriations for pay 
costs are no longer being enacted, there is seldom sufficient funds 
available to defray the annual increases in "cost of hiring" bene- 
fits. 

But then if you look on page 11 of the justifications, you indicat- 
ed that the 1994 request includes $555,000 to defray cost-of-living 
increase decreed by the governments where our installations are 
located. 

That would suggest that the 1994 budget has in it the anticipated 
cost-of-living increases. 

Then, in 1994, you should not have to tap other resources such as 
maintenance funds to cover those costs. 

Is that correct? 

Col. Ryan. Yes, sir, we shouldn't. What we have in the request 
are sufficient funds to cover the cost of living increases for our for- 
eign national personnel. These increases are decreed by the govern- 
ments where our installations are located; our treaty agreements 
say that we will comply with them. Cost of living increases for our 
military and U.S. civilian personnel, are not included. 

REDUCTION IN PERSONNEL 

Mr. Stokes. I see. On page 6, I note that the actual full-time, 
permanent positions has decreased from 386 to 376 between 1992 and 
1994. 

Where were those decreases taken? And tell us why. 

Col. Ryan. The decreases were directed by the Office of Manage- 
ment and Budget as part of a reduction in force in the government. 
We have been cut four spaces this year, six next year and five the 
following year. All of the cuts are coming from our resources over- 
seas, either in Europe, the Philippines or in the Mediterranean. 

Mr. Stokes. None in Washington, D.C.? 

Col. Ryan. None in Washington, D.C. In fact, we are short two 
personnel in Washington, D.C, right now. We are supposed to have 
a chief financial officer, and we don't have one. It is a requirement 
by law, that we have one. 

And we have a requirement to replace our Executive Secretary, 
with a civilian and we don't have a civilian space for that. So when 
we do get a Secretary, we will have to pull an additional space 
from somewhere to fill that vacancy. One of these days we will also 
have to pull a space for a chief financial officer. 

Mr. Stokes. In the foreign area, can you give us some idea of the 
positions that you are cutting? Are we talking about some of the 
local nationals there or foreign? 

Col. Ryan. We are talking about the local nationals sir, yes, sir. 
We have lost 69 spaces since 1968. This is despite an increase in 
cemeteries and memorials and increased activities. 

Mr. Stokes. I will be right back. 

[Brief recess.] 



132 

Mr. Stokes. I think you had finished your answer, actually, to 
the last question, Colonel. 

Col. Badger. Yes, sir. 

Mr. Stokes. And I believe we have concluded our hearing. 

Col. Badger. Sir, we would like to offer the opportunity, if you 
could get it, to come visit us overseas and look at some of our in- 
stallations. We would appreciate a visit from you so that you could 
see firsthand where the money is going. 

Mr. Stokes. It is nice of you to do that. Colonel. It has been sev- 
eral years now since I visited over there. And, let's see, Greneral 
Donaldson has now, on a couple of occasions, taken time out to 
spend some time there with me and shown me your facilities. And 
we have often discussed the possibility some day of going up to 
Normandy to look at your cemeteries up there, which I understand 
are beautiful and well kept. 

Col. Ryan. Preferably, it should be this year rather than next 
year. It will be so crowded next year, you won't be able to find a 
place to stay. 

Mr. Stokes. This is what I have been told. We might try to take 
you up on your offer. I appreciate it. Thank you. 

I'm sorry, Mr. Lewis. I didn't recognize you coming in. 

Mr. Lewis. You have already asked all my questions. 

Mr. Stokes. This is Mr. Lewis, our Ranking Minority Member 
and a very distinguished Member of this committee. 

Mr. Lewis. Who has been visiting the chiropractor. 

Mr. Stokes. Thank you gentlemen. It has been a pleasure having 
you. 

[Questions and answers for the record and the justifications 
follow:] 



133 



Quastlons for th* Racord Stibmittad by Congrasswoaan Kaptar 

WORLD WAR II MEMORIAL 

Question. As you know, 1 have Introduced legislation (H.R. 682) to 
authorize the construction of a memorial in the Washington, D.C. area 
dedicated to our nation's World War II veterans. Could this memorial 
include displays or other educational information to give visitors to the 
memorial a sense of the times, the scope of the war, and the enduring 
values to which our participation in that struggle was dedicated? 

Answer. Not having any idea at this moment of what the memorial's design 
will consist, it is somewhat early to give you a definitive answer to your 
question. Certainly, it is something that we can and will discuss with the 
National Park Service, which will be responsible for its day to day 
operations after completion of the memorial. 

Question. I note the planned travel to Normandy to participate in World 
War II commemorations. Could you please give me the total amount of 
expenditures you will use to travel to Normandy? 

Answer. $90 thousand have been included in the request to defray the 
travel of Commissioners to the 50th Anniversary of the Normandy landings. 

Question. Please expand on the extent of the Commission's involvement in 
the Allied celebrations in Normandy. 

Answer. The following activities are tentatively being planned for the 
Allied celebrations in Normandy: 3 June 94, U.S. Air Force ceremony at the 
Cambridge American Cemetery; 5 June 94, U.S. 82d Airborne drop at Ste. Mere 
Eglise; 6 June 94, U.S. Ranger assault and ceremony at Pte. du Hoc Ranger ' 
Monument, international ceremony at Coleville sur mer (Omaha Beach) 
adjacent to the Normandy American Ceremony; U.S. national ceremony at the 
Normandy American Ceremony; night ceremony at the Caen Museum; and 7 June 
94, a French ceremony at the Eisenhower Museum in Bayeux. The Commission 
will provide the site and coordinate the activities at the Cambridge 
American Cemetery; will provide the site for the Ranger assault and 
coordinate activities there; will attend the international ceremony at 
Omaha Beach adjacent to its cemetery and assist with its coordination; will 
conduct the National ceremony at the Normandy American Cemetery; will 
attend the night ceremony at the Caen Museum and will attend the ceremony 
at the Eisenhower Memorial in Bayeux. 

Question. What is your role in this commemoration? 

Answer. The Commission's role is to provide some of the facilities at 
which ceremonies will be conducted, to coordinate activities with respect 
it its own facilities and to conduct the ceremony at the Normandy American 
Cemetery. 



134 



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232 



So 



Wednesday, March 31, 1993. 
CEMETERIAL EXPENSES— DEPARTMENT OF THE ARMY 

WITNESSES 

STEVEN DOLA, DEPUTY ASSISTANT SECRETARY (MANAGEMENT AND 
BUDGET), OFFICE OF THE ASSISTANT SECRETARY OF THE ARMY 
(CIVIL WORKS) 
JOHN C. METZLER, JR., DIRECTOR, ARLINGTON NATIONAL CEMETERY 
RORY D. SMITH, BUDGET OFFICER, ARLINGTON NATIONAL CEMETERY 

COLONEL HARDESTY, DEPUTY COMMANDER OF THE MILITARY DIS- 
TRICT OF WASHINGTON. 

Introduction 

Mr. Stokes. We would like to welcome Mr. Steve Dola, the 
Deputy for Management and Budget in the Office of the Assistant 
Secretary of the Army for Civil Works who is with us again. 

Accompanying him today are Mr. John C. Metzler, the Superin- 
tendent of Arlington National Cemetery and Mr. Rory Smith, the 
Budget Officer. 

The fiscal year 1994 budget requests $12,738,000 and 136 FTE for 
expenses at Arlington National Cemetery and the Soldiers' and 
Airmen's Home Cemetery. This is a decrease of $295,000 and 3 FTE 
below 1993. 

Mr. Dola, we welcome you and your associates back before our 
subcommittee. We will place in the record your entire statement. 
You may proceed at this time in any way you would like. 

Mr. Dola. Thank you very much, Mr. Chairman, Congressman 
Lewis. 

As you indicated, Mr. Metzler is on my right and Mr. Smith is on 
my left. And I would like to introduce Colonel Hardesty who is the 
Deputy Commander of the Military District of Washington. 

FISCAL YEAR 1994 BUDGET OVERVIEW 

I would like to summarize briefly my statement. The request for 
fiscal year 1994, as you indicated, is $12,738,000 for financing op- 
erations at both Arlington National Cemetery and Soldiers' and 
Airmen's Home National Cemetery. It provides funds for the 
design of the next increment of the Columbarium, to renovate the 
vehicle and equipment service complex, and for continued develop- 
ment of a new Master Plan, and to provide for removal of under- 
ground fuel storage tanks. 

The requested funding is $295,000 less than the 1993 appropria- 
tions and reflects the results of governmentwide deficit reduction 
programs. 

(157) 



158 



FUNERALS 



In fiscal year 1992, there were 2,962 interments and 1,277 inurn- 
ments. 3,500 interments and 1,300 inurnments are estimated in 
fiscal year 1993 and the same for fiscal year 1994. 

CEREMONIES 

Arlington National Cemetery is this Nation's principal shrine to 
honor the men and women who served in the Armed Forces. In ad- 
dition to the thousands of funerals held there each year, hundreds 
of other ceremonies are held there to honor those that rest in the 
cemetery. 

Thousands of people visit Arlington to participate in these 
events. And during fiscal year 1992, about 1,900 ceremonies were 
conducted. During fiscal year 1992, about 4 million visitors were ac- 
commodated at Arlington, making it one of the most visited histori- 
cal sites in the national capital region. 

SECTION 27 

The area of the cemetery designated as Section 27 contains the 
graves of former residents of the Freedmans' Village and members 
of the U.S. Colored Troops, as well as other original burials at Ar- 
lington. This area of the cemetery is no longer active for burials. 

During last year's testimony before this subcommittee, Mr. 
Chairman, Section 27 was introduced as an important subject of 
discussion. Since that time, work to improve conditions in Section 
27 has progressed. We redoubled our efforts to ensure that Section 
27 receives the proper care all areas of the cemetery should re- 
ceive. 

During fiscal year 1992, we completed major maintenance of the 
area. During fiscal year 1993, we have begun to replace approxi- 
mately 1000 modern, flat grave markers with marble, upright head 
stones that are inscribed appropriately. This activity will require 
several years to complete. The entire infrastructure of the area will 
be reviewed as part of the new Master Plan that the committee al- 
lowed us to start with an appropriation in fiscal year 1993 and for 
which we are asking $500,000 to complete the financing of that in 
fiscal year 1994. 

I should also point out that the area is now prominently men- 
tioned in the cemetery's brochure and has been added to the walk- 
ing map. A commercially produced video, which documents the his- 
tory of Arlington and Section 27 and the former residents of Freed- 
mans' Village, is now available to the public. 

COLUMBARIUM 

Inurnment activities in the Columbarium continue to increase. 
In 1980, the first year of operation, we had 657 inurnments. We are 
now averaging approximately 1300 per year. At this rate, all avail- 
able space in the existing Columbarium will be exhausted in fiscal 
year 1998. Accordingly, we plan to begin design of the next incre- 
ment of the Columbarium in fiscal year 1994 and for which we 
have proposed $520,000. 



159 

MASTER PLAN 

As I indicated, the Master Plan was started in fiscal year 1993, 
and we are asking $500,000 to complete it in this fiscal year. 

FACILITY MAINTENANCE COMPLEX 

Recently, the concept design for the new maintenance facility 
was reviewed. Preparatory to the initiation of final design, it was 
found that the available funds would not be sufficient to construct 
the required facility as it was presently designed. 

So the concept design was re-examined to identify and eliminate 
those features whose utility no longer could be justified in light of 
their costs. The remaining features were prioritized so as to enable 
us to proceed with any available funding and to construct a fully 
usable facility. The features not being proposed at this time would 
be deferred for later consideration, perhaps constituting a second 
phase, and would be considered at the time we do the Master Plan, 

We propose to begin the construction in the new maintenance fa- 
cility in August of 1993. And the projected date for completion 
would be early in 1995. 

COMBINED AMPHITHEATER PROJECT 

In fiscal year 1992, Mr. Chairman, the President's budget re- 
quested, and the Congress appropriated, $4.8 million to repair rain- 
water leaks at the Memorial Amphitheater. Last year, fiscal year 
1993, $4.5 million was appropriated for a Marble Restoration 
project to be undertaken in conjunction with the Rainwater Leaks 
Repair project. The combined project is 60 percent design complete, 
and contract award is forecast for next September. Work is sched- 
uled to be completed in August of 1995. 

Approval of the fiscal year 1994 request will permit the Depart- 
ment of the Army to continue the high standards of maintenance 
Arlington National Cemetery deserves. 

Finally, Mr. Chairman, I would like to update the committee on 
several items: One is ongoing; two have been put to a conclusion. 

PAID PARKING FACILITY 

First, following up to a suggestion by our audit p)eople. We plan 
to advertise the lease for the paid parking facility at Arlington this 
summer to ensure that we have a lease that is mir to the operator 
and provides a fair return to the government and provides quality 
service to the visiting public. 

HISTORICAL SOCIETY 

Second, we decided not to recognize the Arlington National Cem- 
etery Historical Society as an entity to operate on the grounds of 
Arlington National Cemetery. 



67-798 O— 93 6 



160 



REPATRIATION OF REMAINS 



And, third, I am proud to report that after 51 years, the remains 
of Ignace Jan Paderewski have been returned to his native Poland. 
Mr. Chairman, this concludes my remarks. 
Mr. Stokes. Thank you very much, Mr. Dola. 
[The information follows:] 



161 



STATS4EKT OF STETEN DOU 
DEPUTY ASSISTANT SECRETARY (MANAOEMENT AND BUDGET) , 
OFFICE OF THE ASSISTANT SECRETARY OF THE ARMY (CIVIL WORKS) 
BEFORE THE SUBCOHHITTEE ON VETERANS AFFAIRS AND HOUSING 
AND URBAN DEVELOPMENT AND OTHER INDEPENDENT AGENCIES 
COMMITTEE ON APPROPRIATIONS, HOUSE OF REPRESENTATIVES 
ON THE FISCAL YEAR 1994 CEMETERIAL EXPENSES, ARMY 
MARCH 31. 1993 



MR. CHAIRMAN AND MQ4BERS OF THE SUBCOMMITTEE: 

INTRODUCTION 

I appreciate the opportunity to appear before the subconnnittee 
in support of the Fiscal Year 1994 appropriation request for 
Cemeterial Expenses, Department of the Army. With me today are Mr. 
John C. Metzler, Jr., Superintendent of Arlington National Cemetery, 
and Mr. Rory D. Smith, Budget Officer, also from Arlington National 
Cemetery. We are appearing on behalf of the Secretary of the Army, 
who is responsible for the operation and maintenance of Arlington 
and Soldiers* and Airmen's Home National Cemeteries. 

FISCAL YEAR 1994 BUDGET OVERVIEW 

The request for Fiscal Year 1994 is $12,738|000. The funds 
requested are sufficient to support the work force, to assure 
adequate maintenance of the buildings, to acquire necessary supplies 
and equipment, and to provide luintenance standards expected at 
these national shrines. The funds requested will finance operations 
at both cemeteries, provide for design of the next increment of 
the Columbarium, renovate the service complex, continue development 
of a new Master Plan, and provide for removal of underground fuel 
storage tanks. The requested funding is $295 ,000 less than the 
Fiscal Year 1993 appropriation and reflect the implementation of 
Executive Order 12837, "Deficit Control and Productivity Improvement 
in the Administration of the Federal Govemmoit". 



FUNERALS 

In Fiscal Year 1992, there were 2,962 interments and 1,277 
inumments; 3,500 interments and 1,300 inunuwnts are estimated 
In Fiscal Year 1993; and 3i5O0 Interments and 1,300 inumments are 
estimated in Fiscal Year 1994. 



CBRBIONIBS 

Arlington Rational Cemetery is this Ration's principal shrine to 
honor the aen and women who served in the Armed Forces. It is a 



162 



visible reflection of America's appreciation for those who have 
made the ultimate sacrifice to maintain our freedom. In addition to 
the thousands of funerals, with military honors, held there each 
year, hundreds of other ceremonies are conducted to honor those 
who rest in the cemetery. Thousands of visitors, both foreign and 
American, visit Arlington to participate in these events. During 
Fiscal Year 1992, about 1,900 ceremonies were conducted. On June 
29, 1992, the 51st anniversary of his death, the remains of 
Ignace Paderewski were returned to Poland. A ceremony was conducted 
at Arlington in conjunction with that repatriation. 

During Fiscal Year 1992, Arlington National Cemetery accommodated 
over 4 million visitors, making Arlington one of the most visited 
historic sites in the National Capital Region. 



SECTION 27 

The area designated as section 27 at Arlington National Cemetery 
contains the graves of former residents of Freedmans Village and 
members of the U. S. Colored Troops, as well as other original 
burials at Arlington. This area of the cemetery is no longer active 
for burials. During last year's testimony before this subcommittee 
Section 27 was introduced as an Important subject of discussion. 
Since that time work to improve conditions in Section 27 has 
progressed. We have redoubled our efforts to ensure that Section 27 
receives the proper care all areas in the cemetery should receive. 

During FY 1992 we have removed two large dead trees, raised branches 
and removed the dead wood from the remaining trees. We remove 
fallen branches and leaves from the grounds weekly, mow and trim 
the grass weekly, core-aerate the turf and spot hydroseed in the 
spring, apply turf fertilizer and broadleaf weed spray in the fall 
and spring, and apply limestone in the fall. Also during FY 1992 
a crew was dispatched into the section to clean all of the up- 
right grave markers with a power washer, identify all broken/damaged 
markers or markers that were no longer legible. Replacement markers 
are starting to arrive. 

During FY 1993 we have begun to replace approximately 1,000 modem 
flat grave markers with marble upright headstones that are inscribed 
appropriately. This activity will proceed in stages and will require 
several years to complete. The entire infrastructure of the area 
will be reviewed as part of the Master Plem currently underway. An 
historic restoration of the original handwritten burial register is 
planned for during FY 1993. The area is now prominently mentioned 
in Arlington National Cemetery's brochure and has been added to 
the walking map. A commercially produced video which documents the 
history of Arlington and Section 27 and of the former residents of 
Freedmans Village is now available to the public. 



163 



COLOMBARIOM 

Inurnment activities in the Colufflbarium continue to increase. In 
1980, the first year of operation, we had 657 Inumfflents. Because of 
the advanced age of World War I and World War II Veterans, we are 
now averaging approximately 1,300 inumments per year. At this rate, 
all available space in the existing Columbarium will be exhausted in 
FY 1998. We plan to begin design of the next increment of the 
Columbarium in FY 1994 for approximately $520,000. 



SERVICE COMPLEX 

A project is being requested to renovate Arlington National 
Cemetery's service complex. This facility is the staging area for 
the personnel who maintain the cemetery and the field equipment. 
The facility is over 20 years old and has not been upgraded. 
Electrical, heating and ventilating, air-conditioning and safety 
systems need to be Installed; and the complex requires painting and 
minor repairs. The estimated cost of this project is $600,000. 



GRAVELINERS 

Public Law 100-322 authorized the Secretary of the Army to provide 
gravellner*s for use in Arlington National Cemetery. An evaluation 
of the specific conditions which exist at Arlington National 
Cemetery has been performed to determine the cost effectiveness of 
using graveliners. Based on the results of the evaluation, the FY 
1994 request includes $190,000 to begin providing graveliners at 
Arlington National Cemetery. 



MASTER PUN 

A new Master Plan for Arlington will take several years to complete 
and cost an estimated $1,000,000. The Fiscal Year 1994 request 
includes $500,000 to complete the plan, irtiich was initially funded 
in the amount of $500,000 in Fiscal Year 1993. The new plan will 
address projected improvements for the next 30 years, including 
expansion of the capacity of Arlington National Cemetery and 
development of out-year construction projects. Selection of an 
Architect-Engineer and development of a detailed scope of work 
is currently underway for the Master Plan. The original 1967 
Master Plan consisted of 28 projects. Of the 28, 25 projects are 
completed. The West Boundary wall project, which has been partially 
funded, is not completed. The two unstarted projects are: one, 
replacement of the Custis Walk; and, two, the development of 52 
acres of land in the cemetery for burial purposes. 



164 



RQIOVAL OP nNDERQROUND STORAOB TANKS 

There are 14 known underground fuel storage tanks located throughout 
the cemetery. All of these tanks need to be tested to determine 
If they are still serviceable. Some of these tanks are no longer 
In use and need to be removed. During the removal process any soil 
that is contaminated will have to be removed and the area left 
clean. The Fiscal Tear 1994 request provides $350,000 to continue 
the process of evaluation and tank removal. Four tanks have been 
removed so far during Fiscal Year 1993. 

FACILITY MAINTENANCE COMPLEX 

The new maintenance shops and warehouse requested in Fiscal Year 
1991 is currently being designed and will replace buildings 
constructed in 1930. These were originally constructed as horse 
stables and converted to a cemetery maintenance facility in the late 
1940s. They were not designed to house or service modem cemetery 
equipment; consequently, they are inadequate for those purposes. 
Moreover, the existing facility did not meet the current OSHA 
standards. 

Recently, the concept design was reviewed preparatory to the 
initiation of final design. It was found that the available funds 
would not be sufficient to construct the required facility as 
presently designed. The concept design was therefore reexamined to 
identify and eliminate features whose utility no longer could be 
Justified in light of their cost. The remaining features were 
prioritized, so as to enable us to proceed within the funds 
available with construction of a fully usable facility. The features 
not being proposed at this time would be deferred for later 
consideration, constituting a second phase of the project. 

Construction of the new maintenance facility is forecast to begin in 
August of 1993. The facility maintenance complex will consist of 
work and storage areas for three divisions (Facility Maintenance, 
Horticulture, and Field Operations), in three separate buildings. 
There will be another building for warehouse operations and a 
building for the administrative functions associated with all of 
these operations. In addition, the project will include a vehicle 
storage area, as well as employee break rooms, looker and shower 
rooms, and meeting rooms. It will meet current building standards, 
and will be located so as to facilitate the efficient performance of 
the daily operations of the cemetery. 



OLD ADMINISTRATION BOILDING FIRE 

In our written testimony of a year ago we informed you of an 
early morning fire on November 13> 1991, which damaged the old 
administration building. The building was originally scheduled to 
be transferred to the National Park Servioe, in exchange for 
land provided by the Park Servioe to construct the new Visitors 



165 



Center In Arlington National Cemetery. We provided the Park Service 
with $200,000 30 they could contract for needed repairs on our 
behalf under the Economy in Government Act. This allowed the 
Army to fund the minimum repairs — reconstruction of the roof, 
exterior walls and windows — that are necessary to protect the 
structure from further deterioration. 



MmORIAL AMPHITHEATER COMBINED PROJECT 

In Fiscal Year 1992, the President's Budget requested, and the 
Congress appropriated, $1.8 million to repair rainwater leaks at the 
Memorial Amphitheater. In FY 1993 $'••5 million was appropriated for 
a Marble Restoration project to be undertaken In conjunction with 
the Rainwater Leaks Repair project. The combined project is 60J{ 
design complete and contract award is forecast for September 1993. 
Work is scheduled to be completed, in August 1995. 

Approval of the Fiscal Year 1994 request will permit the Department 
of the Army to continue the high standards of maintenance Arlington 
National Cemetery deserves. 



Mr. Chairman, this concludes my remarks. We will be pleased to 
respond to questions from the subcommittee. 



166 



REPORT ON SECTION 27 



Mr. Stokes. Last year's House report expressed concern with the 
condition of Section 27 at Arlington National Cemetery. The 1993 
conference report also expressed the same concerns and directed 
that a report be prepared on Section 27. We have now received 
that report, and we will place it in the record at this point. 

[The information follows:] 



167 




DEPARTMENT OF THE ARMY 

OFFICE OF THE ASSISTANT SECRETARY 
WASHINGTON. DC 2031(KI10e 



ncPtY TO 

ATTENTION Of 




3 MAR 1933 



Honorable Louis Stokes 

Chairman, Subcommittee on Veterans 

Affairs, Housing and Urban 

Development — Independent Agencies 
Committee on Appropriations 
House of Representatives 
Washington, D. C. 20515-2208 

Dear Mr. Chairman: 

This letter submits a report entitled "Arlington National 
Cemetery Section 27 Study," which has been prepared pursuant to 
Conference Committee Report No. 102-902, dated September 29, 1992, 
accompanying the Departments of Veterans Affairs and Housing and 
Urban Development and Independent Agencies Appropriation Act, 1993. 

The area designated as section 27 contains the graves of 
former residents of Freedmans' VillE.ge and members of the 
U.S. Colored Troops, as well as other original burials at 
Arlington. Both the House and Senate Appropriations Committees 
have provided guidance concerning the Department of the Army's 
responsibilities for the care and maintenance of section 27 of 
Arlington National Cemetery. Accordingly, the information in the 
enclosed report updates the Committees on activities Arlington 
National Cemetery is presently undertaking to ensure that the 
historical nature of section 27 of the cemetery is properly 
recognized. Mr. Chairman, you and other members of the Committee 
are invited to see the work already done in the section and provide 
further comments or recommendations that would contribute to the 
proper maintenance and care of section 27 in the future. 

An identical letter is being sent to the Honorable Barbara 
Mikulski, Madam Chair, Subcommittee on Veterans Affairs, Housing 
and Urban Development and Independent Agencies, Committee on 
Appropriations, United States Senate. 

Sincerely, 






G. Edward Dickey 
Acting Assistant Secretary of the Army 
(Civil Works) 



Enclosure 



168 



ARLIHGTOH HAnONAL CEMETERY SECTION t 27 STODX 



MARCH 1992 



ARLINGTOM NATIONAL CEMETERT 
AHUNGTON, VIRGINIA 22211-5003 



169 



PORPOSE. 



The House of Representatives' Connlttee on Appropriations directed the 
Amy to study the progress on restoration work to Improve conditions in 
Section 27 at Arlington National Cemetery. The Committee Is concerned 
with conditions of Section 27 and would like the following conditions 
addressed: 



Clean and restore grounds. 



Replace headstones due to the historical significance of the 
graves in this section. Headmarkers with the inscription "On- 
known" should be provided to replace unmarked stumps presently 
in place for graves bearing the remains of unknown United States 
Colored Troops or residents of Freedmans' Village. Markers in- 
scribed "Citizen" should also be replaced. 



Conduct a feasibility study on documenting/recording of the 
grave sites in Section 27 for historical purposes and produce a 
brochure on the same. In carrying out this work, the Secretary 
'of the Army should utilize the expertise of the Historian of the 
Arlington National Cemetery, African American veterans' groups, 
historical African American organizations, the Department of 
Veterans Affairs and the National Archives. 



This report responds to those requirements and Includes total funds 
spent to date on Section 27 projects, an estimate of future funding 
requirements and the estimated completion date(s) of the restoration 
projects. 



BACKGROUND. 



The area designated as section 27 at Arlington National Cemetery 
contains the graves of former residents of Freedmans' Village and 
■embers of the U.S. Colored Troops, aa well as other orglnal burials at 
Arlington. This area of the cemetery Is no longer active for burials. 
During testimony before the House of Representatives' Committee on 
Appropriations on February 4, 1992, Congressman Stokes introduced 
Section 27 as an Important subject of discussion. 



170 



During that discussion Congressman Stokes raised concerns about how the 
grave sites in that section were kept and asked if any were neglected. 
Additionally, Congressman Stokes was concerned about the section not 
recelrlng the same equal treatment as the rest of the cemetery. 



PROGRESS. 



Subsequent to Congressman Stokes' concerns we have redoubled our 
efforts to ensure that section 27 receives the proper grounds 
maintenance and care all areas in the cemetery should receive. 



During Fiscal Year (FY) 92 we have removed two large dead trees, raised 
branches and removed the deadwood from the remaining trees. We regular- 
ly remove fallen branches and leaves from the grounds weekly, mow and 
trim the grass weekly, core-aerate the turf and spot hydroseed in the 
spring, apply turf fertilizer and broadleaf weed spray In the fall and 
spring, and apply limestone in the fall. 



Also during FY 92 a crew was dispatched into the section to clean all 
of the grave marlcers with a power washer, identify all broken/damaged 
markers or markers that were no longer legible. Replacement markers 
have been ordered. 



During FY 93 we have begun to replace approximately 1 ,000 modem flat 
grave markers with marble upright headstones that are appropriately in- 
scribed. This activity will proceed in stages and will require several 
years to complete. 



Major road repair of Ord and Weitzel Drive and L'Enfant Drive will be 
accomplished as a phase in the on-going road repairs. The timing and 
cost associated with that phase has not been completed but will be 
addressed in the Master Plan. The boundary wall adjacent to the section 
will also be addressed in the Master Plan. The entire infrastructure 
of the area will be reviewed as part of the Master Plan initiated this 
year, that will identify needed improvements such as irrigation and 
storm drainage systems, roads, utilities, Isindscaping , and walls and 
gates. The Master Plan is expected to take several years to be 
completed. 



Included in Arlington National Cemetery's historical holdings is the 
original, handwritten burial register of the U.S. Colored Troops and 
Civil War Contrabands interred in Section 27. This register includes 
all the information known about the individuals at their time of death. 



171 



33 well as the grave locations. This information, which can be shared 
with any interested Individuals and groups, would appear to fulfill the 
purpose of the feasibility study mentioned in the House Committee 
Report to document and record the gravesites in this section for 
historical purposes. An historic restoration of the records is planned 
to be contracted for during FY 1993 pursuant to available funds. 

Section 27 is now prominently mentioned in Arlington National 
Cemetery's brochure and has been recently added to the walking map. 
Also, the highlights about the section, with a description of its 
historical importance, have recently been added to the narration 
offered by the tourmobile personnel to visitors to Arlington. In 
addition, the staff at Arlington hai assisted with the production 
of a commercially produced video which docments the history of 
Section 27 and of the former residents of Freedmans' Village. The video 
is now available to the public. 



Associated Cost 



.. 


FT 92 


FY 93 


Out years 






($ in 000) 




Care of grounds 


25 


50 


50 


Care of headstones 


15 


25 


25 


Historical documenting/ 
recording 


1 


5 


5 



TOTAL i»1 80 85 



It is anticipated that approximately 5 years will be required to 
complete the restoration projects except for large dollar infrastruc- 
ture projects to be addressed in the Master Plan. 



172 



PROGRESS ON SECTION 27 



Mr. Stokes. Both in your statement and in the report, Mr. Dola, 
you have given us a progress report of the things that have been 
done in Section 27. And I want to express my appreciation to you 
for the fact that you have been responsive to the concerns of the 
committee and that the restoration work that has begun out there 
has been viewed by my staff recently, and they have advised how 
much progress is being made. And the fact that you have now in- 
cluded this section in both your brochure and the video, I think is 
something we can all be proud that we have now addressed appro- 
priately. Even though I understand the full restoration will take 
about five years, at least you are, obviously, well under way in 
terms of the overall progress being made. 

And so I just want you to know that I appreciate the responsive 
way in which you and Mr. Metzler have approached this. 

Mr. Dola. Mr. Chairman, we appreciate those remarks; but we 
also appreciate your interest and your guidance for calling this 
matter to our attention in the manner in which you did and the 
manner in which you and your staff followed up. We are always 
interested in receiving your advice and guidance, and thank you 
for your remarks. 

Mr. Metzler. 

Mr. Metzler. I would hope that the five-year estimate that you 
cited would be accelerated with favorable weather. We have started 
replacing the head stones, and we are going to make a concentrat- 
ed effort to move that program along and hope we can cut it down 
considerably and hope that next year we will be able to give you a 
more favorable report. 

adequate funding 

Mr. Stokes. Mr. Metzler, in your opinion, will the 1994 request 
provide adequate funds to permit all sections in Arlington National 
Cemetery to be properly and equally maintained in a manner befit- 
ting this national shrine? 

Mr. Metzler. Mr. Chairman, it will be a challenge for us to be 
able to get through all the sections of the cemetery. We have had a 
very wet winter. We have had a wet spring up to this point. There 
is a lot of remediation that needs to be done in the sections, and we 
have our work cut out for us. 

ORIGINAL BURIAL REGISTRY 

Mr. Stokes. One of the things that you have indicated you will 
do during fiscal year 1993 is restore the original handwritten 
burial registry of the United States Colored Troops and Civil War 
Contrabands interred in Section 27. 

Will you be able to complete this restoration project by the end 
of 1993? 

Mr. Metzler. I am happy to report that we have turned this doc- 
ument over to a contractor. He has it right now and is in the proc- 
ess of working on it. And we should receive it back in six months. 
And I will inform you and the committee as soon as we have it 
back at the cemetery. 



173 

Mr. Stokes. What will be your guidelines on availability of the 
restored registry to interested groups and individuals? 

Mr. Metzler. I think one of my concerns is, once we have it re- 
stored, that we don't want to have it damaged after its restoration. 
So we will get guidance from the people that are restoring it for us 
as far as how it can be handled, used, and displayed. 

But one of the purposes for restoring it is so that it can be han- 
dled. But there must be care exercised with that. We had the op- 
portunity to view the document before it went out to be restored, 
and the printing is very faint at this point. And I am concerned 
that a lot of handling would have some impact on it. So we will 
certainly get guidance from these experts before we put this docu- 
ment out. But it is our intention to make it available. 

Mr. Lewis. I'm sorry, Mr. Chairman. Are these experts at the Li- 
brary of Congress? 

Mr. Metzler. Yes. 

graveliners 

Mr. Stokes. You indicate in the statement that the 1994 request 
includes $190,000 to begin providing graveliners in Arlington Na- 
tional Cemetery. 

Will graveliners be provided for all burials at Arlington? 

Mr. Metzler. Not all burials. All initial burials. There is a differ- 
ence. If I could explain, we have cremations that are either in- 
urned into the Columbarium or buried in the ground. They will not 
require graveliners. Initial internments where the family has 
chosen not to provide a grave vault or graveliner of their own, we 
will provide it. 

When there is an interment and the family has not put a grave- 
liner in the first time, then we will not place a graveliner on top of 
an existing grave in fear that that weight would damage that first 
or second internment. 

So it will only be for the initial interment or where the grave- 
liners are not provided by the family. 

Mr. Stokes. What do you expect will be the benefits of using gra- 
veliners at Arlington? And will it offset the additional costs? 

Mr. Metzler. The immediate benefit will be the grounds mainte- 
nance at the cemetery. It will eliminate the depressions that we ex- 
perience and the settlement of the ground that takes place after a 
burial. There is a foundation where the casket goes inside. It is not 
a means by which that preserves the remains, but a maintenance 
expedience that helps with the maintenance of the grounds. 

Mr. Stokes. What do you anticipate to be the cost of each of 
these graveliners? 

Mr. Metzler. Our best estimate is about $135 per unit. We have 
a contract that is currently being worked out, and we have not re- 
ceived the results back yet. 

Mr. Stokes. Mr. Lewis. 

Mr. Lewis. Mr. Chairman, I have no questions. 

UNDERGROUND TANK REMOVAL 

Mr. Stokes. You are requesting $350,000 for removal of under- 
ground storage tanks. 



174 

Do you now know the scope of this problem? 

Mr. DoLA. Mr. Chairman, the truth is, we don't have a handle 
yet on the total cost. This year, we have removed four such tanks 
so far and provided soil samples to the Virginia State Water Con- 
trol Board and they are analyzing those. We expect to hear the re- 
sults soon. 

And when we do get the results, we should get recommendations 
on the next steps; whether there should be some monitoring such 
as installation of wells or whether or not remediation should take 
place. 

If remediation takes place, it would run the costs up consider- 
ably. 

In summary, we have not fully defined the scope by any means. 
Over the next 12 months, we should be in a better position to 
answer that question. 

Mr. Lewis. You have requested $350,000, have you not? 

Mr. DoLA. Yes, we did. 

Mr. Lewis. How did you go about guesstimating that amount. 

Mr. DoLA. Well, it was a guess, Mr. Congressman. 

Mr. Metzler. It is based on the experience of our neighbors, and 
we have asked them what the typical costs have been for remedi- 
ation. The actual cost to remove the tanks is modest. It is the reme- 
diation that is the unknown cost at this point. 

Mr. DoLA. Mr. Chairman, we are going to proceed carefully. The 
ones that we have taken out we are going to find out what the situ- 
ation is before we proceed and perhaps run up a bill that none of 
us anticipate at this point. So we want to proceed in a careful, pru- 
dent way. 

Mr. Lewis. The committee is concerned about the potential open- 
ended nature of this. 

Mr. DoLA. Yes, we understand. And we will proceed prudently in 
light of your concern. 

Mr. Metzler. One good note is that all four tanks have been 
taken out of the same hole, so we don't have four different loca- 
tions. So this one ought to be able to be remediated at a relatively 
modest cost. 

ESTIMATED COMPLETION OF TANK REMOVAL 

Mr. Stokes. Can you tell us when the removal or remediation 
work will be completed? 

Mr. DoLA. We don't know that yet. The first step is to receive the 
results and recommendations from the Virginia State Water Con- 
trol Board. And they would have some recommendations, and we 
will be in a position to see what we should do next. 

ADDITIONAL TANK REMOVAL COST 

Mr. Stokes. Is there any way to anticipate knowing the addition- 
al costs for the removal and remediation of the underground stor- 
age tanks? When will you know about that? 

Mr. DoLA. Well, I hope that over the course of the next 12 
months we will know better about it. But we want to proceed care- 
fully, Mr. Chairman, so we don't end up having all these things ex- 



175 

posed, having a large remediation expense that we did not inform 
you of at the proper time. We want to go carefully. 

Mr. Lewis. You indicated — excuse me, Mr. Chairman. 

Mr. Stokes. Go right ahead. 

Mr. Lewis. The $350,000 is a considerable judgment, a guessti- 
mate. Will you be able to use at least that much over the next 12 
months? 

Mr. DoLA. It is really difficult to say. We did ask, as Mr. Metzler 
indicated, for one of his staff to contact the other governmental en- 
tities in the area and to talk to the state. And based on this, a 
given site could run as much as several hundred thousand dollars; 
or it could have only minimal costs. So we hesitate to try to tell 
you today what this whole program is going to cost. We would only 
be taking a shot in the dark. 

Mr. Metzler. If I could add to that, the four tanks that we have 
removed, all of them have shown signs of leaking. All of our tanks 
in the cemetery are beyond five years old, so they will all have to 
be addressed. So I think in the long run, definitely. We will be 
needing this money. 

Mr. Lewis. Okay. 

fte reduction 

Mr. Stokes. The budget justifications indicate 132 FTE in 1993 
and 129 FTE in 1994 for operations and maintenance. 

Is the reduction of 3 FTE in 1994 the result of the administra- 
tion's proposal to reduce Federal employment by 100,000? 

Mr. Metzler. Yes, sir. 

Mr. Stokes. How will you absorb the reduction in the FTE for 
operations and maintenance of the cemetery? And tell us what the 
impact of that will be. 

Mr. Metzler. Initially, we are going to not hire our seasonal 
help, which is a temporary FTE, that we have each year to help us 
get through the spring and summer months when we have so much 
vegetation growing and flower beds, trees, and shrubbery that all 
need attention. 

We are going to have to defer some of this and not complete this 
type of maintenance on as regular a basis as we have in the past. 

Mr. Stokes. What is Arlington's total share of the 100,000 FTE 
reduction proposed by the administration? 

Mr. Metzler. At this point, it is four. 

Mr. DoLA. Put it this way. We are talking one in 1993, an addi- 
tional three in 1994. So we will be four short at the end of 1994. 
And — is it two more? Two more in 1995. 

So it is 

Mr. Smith [continuing]. A total of six. 

Mr. Stokes. Total of six. 

Mr. DoLA. And that applied, Mr. Chairman, as you know to all 
agencies over 100 FTE. And we were over that amount, so it ap- 
plied to us. 

EQUIPMENT 

Mr. Stokes. Certainly. You are requesting $343,000 for equip- 
ment in 1994, which is an increase of $193,000. 



176 

Tell us what causes the increased request for equipment. 

Mr. DoLA. Mr. Chairman, there are several large items that need 
to be purchased. A backhoe for $55,000, a dump truck for $33,000. 
There are computers and software for $70,000 and some furniture 
for $31,000. 

Those, I believe, are the major items that cause an increase over 
the current year. 

Mr. Stokes. We are going to also ask you to provide a listing of 
how you intend to utilize the equipment funds that you have re- 
quested for 1994. 

Mr. DoLA. Okay. We will be happy to supply that for the record. 

[The information follows:] 



177 



FISCAL YEAR iggU EQUIPMENT 
The following equipment Is scheduled to be purchased In FY 1994: 



1/2 ton pick ups 4 ea. 

Truck crew cab 

Truck carryall 

2 1/2 Ton Dump truck 

Tents 4 ea. 

Tree malnt. equip & climbing gear 

Chain saws 2 ea. 

Backpack blower 

Sprayer w/3 pt hitch 

Seeder/aerators 3 ea. 

Hand sprayers 4 ea. 

Spreaders 2 ea. 

Conversion kit for tractor 

Spray guns 

Rototiller 

Compressor 

Above ground irrigation pipe 

Dump trailer 

Delta 10" tilting Arbor Onisaw 

Delta 14" Woodcutting Band saw 

Delta 12" Radial Arm saw 

Delta 12" Heavy duty wood lathe 

Delta 15" drill press 3 ea. 

Air Jack hammer 

Back hoe 

Welder w/unlt 

Scrapper/scarifier combo 

Trailer cart, Hyd dump w/gear dr. pump 

Typewriters 2 ea. 

Chairs 31 ea. 

Desks & credenzas 

Kitchen furniture 

Personal Computers 4 ea. 

Mini-Computer w/software 

Computer plotter 

Safety training aids 



t48,000 

«16,000 

416,000 

*33,000 

16,000 

S2,000 

tl.OOO 

is 00 

*3,ooo 
18,000 

$500 

$500 

*1,500 

ii ,000 

*1 ,000 

$500 

15,000 

;7,000 

;i2,000 

:i1 ,500 

; 12, 000 

:;1,500 

:;5,000 

M.OOO 

$55,000 

$5,500 

$2,000 

$6,000 

$1,000 

$11,000 

$20,000 

$4,000 

$13,000 

$30,000 

$28,000 

$4,000 



Total 



$343,000 



178 
Mr. Stokes. Mr. Lewis, do you have anything? 

OLD ADMINISTRATION BUILDING 

Mr. Lewis. You provided $200,000 to the Park Service for the Old 
Administration Building. Is that completed? What is the status of 
that? Has the money been transferred to the Park Service? 

Mr. DoLA. The money has been transferred. There has been re- 
moval of the asbestos and the lead paint and installation of the 
steel beams to support the roof. 

What is the latest? 

Mr. Metzler. Work is ongoing now and we anticipate that we 
will see a roof on the structure before the end of the summer. As a 
matter of fact, they hope to complete all the work before the end of 
the summer. So there is activity at the work site now. 

Mr. Lewis. We want to make sure we caught the snow this year. 

Thank you, Mr. Chairman. 

Mr. Stokes. Okay. Mr. Dola and Mr. Metzler and Mr. Smith, this 
concludes our hearing. We want to thank you for your appearance 
here and for the testimony you have given us. We appreciate it. 

Mr. Dola. Thank you, Mr. Chairman, very much. 

Mr. Stokes. The committee is adjourned until 10:00 a.m. tomor- 
row morning. 

[The justifications follow:] 



179 



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O O 







Thursday, April 1, 1993. 

NEIGHBORHOOD REINVESTMENT CORPORATION 

WITNESSES 

GEORGE KNIGHT, EXECUTIVE DIRECTOR 

HUBERT E. GUEST, DEPUTY EXECUTIVE DIRECTOR/TREASURER 

ROY T. DAVIS, CPA, DIRECTOR, FINANCE, INFORMATION, RESEARCH AND 

MONITORING 
FRANK CASTELLANOS, DIRECTOR OF FIELD OPERATIONS 
MARGO KELLY, DEPUTY DIRECTOR OF FIELD OPERATIONS 
MARY LEE WIDENER, PRESIDENT AND CHIEF EXECUTIVE OFFICER, 

NEIGHBORHOOD HOUSING SERVICES OF AMERICA, INC. 
JEFFREY T. BRYSON, GENERAL COUNSEL/SECRETARY 
JULIA HUNTER GALDO, DIRECTOR, COMMUNICATIONS 
NATHANIEL GRANT, DIRECTOR, HUMAN RESOURCES, ADMINISTRATION 

AND TRAINING 

Introduction 

Mr. Stokes. The committee will come to order. This morning we 
would like to welcome Mr. George Knight, Executive Director of 
the Neighborhood Reinvestment Corporation. 

Mr. Knight, would you like to introduce your associates to the 
committee? 

Mr. Knight. I would be pleased. To my right is Roy Davis, Direc- 
tor of Finance, Information, Research and Monitoring. To his right 
is Frank Castellanos, Director of Field Operations. To his right is 
Margo Kelly, Deputy Director of Field Operations. 

To my left is Hugh Guest, Deputy Executive Director/Treasurer. 
To his left is Mary Lee Widener, President, Neighborhood Housing 
Services of America, our secondary market. 

Behind me is Jeff Bryson, general counsel. Julia Galdo, Director 
of Communications, and Nat Grant, Director of Human Resources 
Administration and Training. 

Statement 

Mr. Stokes. Thank you very much. Nice to have all of you with 
us this morning. 

The Neighborhood Reinvestment Corporation is requesting 
$27,976,000 and 215 FTE for fiscal year 1994. And this represents 
no change from your fiscal year 1993 appropriation and a six FTE 
decrease in staffing. 

Mr. Knight, at this time I recognize you for your statement. We 
will place your entire statement in the record, you may proceed 
any way you would like. 

Mr. Knight. Thank you very much. I, first, want to thank you for 
the committee's support last year and in previous years. 

(197) 



198 

In 1994, the Corporation hopes to affiliate with five new organi- 
zations. We hope to provide technical support to 188 organizations 
and provide training of at least 20 hours each to 1,800 individuals. 

We will support the secondary market operated by Neighborhood 
Housing Services of America. Last year, NHS A purchased $17 mil- 
lion in loans made by Neighbor Works® organizations that were 
unbankable through other conventional sources. In 1994, we will 
also continue to monitor programs. 

This past year like previous years, witnessed a quiet, and, in 
some cases, unnoticed housing affordability crisis in a number of 
places. Two events, however, stood out very publicly. 

First, almost a year ago, following the Rodney King verdict, vio- 
lence erupted in neighborhoods served by the Los Angeles Neigh- 
borhood Housing Services and the Inglewood Neighborhood Hous- 
ing Services. I am proud to report to the committee that the board 
of the Los Angeles Neighborhood Housing Services responded im- 
mediately. The first response was to organize themselves and 
members of their partnership to sweep up the debris, get the glass 
off the streets, and paint out the graffiti. 

Neighborhood Reinvestment made an emergency grant to the 
programs for emergency loans. Also Mary Lee at NHSA called im- 
mediately to offer the services of the secondary market. 

After the initial cleanup, the programs began to organize resi- 
dents to plan for the next steps. The Los Angeles program is a 
small organization in comparison to the City of L.A. so they took 
only 10 blocks as a model approach. Today, I am pleased to report, 
there is a neighborhood grocery that had been burned down that is 
now under construction and it will be double its previous size. This 
is the result of the insurance proceeds, commercial credit and a 
small loan from the Neighborhood Housing Services. 

A couple months later, in a very different set of circumstances, a 
hurricane swept through southern Dade County. While there was 
some damage in the north Dade area where the local Neighbor- 
Works program is located, the southern portion of the county was 
devastated. The program immediately linked up with a farm work- 
ers group to establish an emergency loan pool. 

Again, Neighborhood Reinvestment made an emergency grant. 
Mary Lee extended her offer of emergency assistance, and we are 
now working with a social investor to pull in an additional $5 mil- 
lion to offer below-market-rate loans to individuals whose insur- 
ance proceeds did not cover their full damage and, frankly, to help 
a number of tenants who previously could not have become home 
owners to become home owners because of the outflow of people 
from that area. 

Those, I think, were two examples of how our interconnected 
NeighborWorks network can work together and, with other organi- 
zations, meet the need to renew communities. 

Finally, I would like to thank the committee for the $5 million in 
special equity funds appropriated in 1992. You will find a complete 
report in the justification. These resources have worked very, very 
well. We extended the commitments to NeighborWorks programs, 
and they have started projects and planned what we think will 
result in about 2,600 units with about $140 million in activity. 



199 

Again I want to thank the committee for their encouragement and 
support. 

With that, I will take questions. 

Mr. Stokes. Thank you very much for your presentation. 

[The information follows:] 



200 



STATEMENT OF GEORGE KNIGHT, EXECUTIVE DIRECTOR 

NEIGHBORHOOD REINVESTMENT CORPORATION 

BEFORE THE 

HOUSE APPROPRIATIONS 

SUBCOMMITTEE ON VA, HUD & INDEPENDENT AGENCIES 



FISCAL YEAR 1994 BUDGET REQUEST 
APRIL 1, 1993 ' 



201 



Mr. Chairman and Members of the Committee, thank you for the 
support you have expressed in the Neighborhood Reinvestment 
Corporation and the NeighborWorks® network. I am pleased to 
present the Corporation's request for FY 1994 for $27,976,000. 

FY 1994 PropoBed Activitv 

Neighborhood Reinvestment achieves its mission of renewing 
neglected neighborhoods by creating nonprofit, community-based, 
resident-led, private-public partnership organizations and 
supporting these organizations with training, technical assistance 
and the operation of a secondary market for "unbankable" loans. In 
FY 1994 Neighborhood Reinvestment proposes to: 

1. Create and/or affiliate with five additional local 
organizations whose mission and operations match the overall 
mission of the NeighborWorks® network. 

• 

2. Provide technical assistance to 188 NeighborWorks® 
organizations serving 151 cities, towns and rural areas. In 
FY 1992, this network assisted nearly 6,600 families to retain 
or secure affordable home -ownership or mutual housing. 

3. Provide 1,800 participants -- residents and community leaders 
from within the NeighborWorks® network as well as people from 
throughout the community development field -- with at least 20 
hours each of formal training. 



202 



2 

4. Support the secondary market operated by Neighborhood Housing 
Services of America (NHSA) . In FY 1992, the secondary market 
operation purchased or originated $17.5 million in loans for 
underserved families and communities. 

5. Monitor the NeighborWorks® network to ensure that programmatic 
and financial standards of performance are achieved to a 
degree that serves well the public's interest. 

FY 1992 AccomplishmentB amd Impact 

During FY 1992, the NeighborWorks® network produced an increased 
impact in the 350 neighborhoods served. While each NeighborWorks® 
organization tailors its strategies to specific neighborhood needs, 
most NeighborWorks® organizations rely on well-proven approaches to 
produce affordable housing and revitalize their target 
neighborhoods. The key approaches and tools used in the 
NeighborWorks® network include: 

o Coordination and strategic channeling of conventional and 
public resources , including lending products, insurance 
products and grant programs (used by 100% of programs) . 

o Revolving loan funds . locally capitalized and 
administered, to serve those who could not obtain credit 
from the conventional marketplace (used by 90% of the 
organizations) . 



203 



o Coordination of volunteer efforts in clean up/fix up days 
and projects (used by 6 3% of programs) . 

o Working with local merchants and businesses to improve 
the commercial vitality of their neighborhoods (used by 
48% of programs) . 

o Providing job training and youth employment activities 
(used by 24% of programs) . 

o Other approaches include leadership training, property 
management training, resolving zoning issues, lead poison 
prevention programs and ant i -crime organizing. 

Community Development Lending and Equity Investments. Community 
development lending and equity investment originated from 
NeighborWorJcs® revolving loan funds grew by 17 percent to $26.3 
million in FY 1992. The Corporation expects this lending to reach 
an annual level of $28 million by the close of FY 1994. An 
additional $19 million in loans was originated from pooled capital 
of private-sector lenders. 

The attached matrix, "Sampling of Community Development Financial 
Institutions," outlines the impact of this type of community 



204 



4 

development lending and shows the NeighborWorks® lending system in 
comparison to other community development lenders . 

Reinvestment From Conventional and Piiblic Sources. NeighborWorks® 
organizations coordinate and strategically channel resources from 
conventional and public lenders, insurers, and local capital 
improvement programs. This category of reinvestment grew 
dramatically in FY 1992, up 38 percent to $171.8 million from the 
FY 1991 total. Neighborhood Reinvestment expects continued growth 
in this area in FY 1994, though not at FY 1992' s pace. 

Mutual Housing Associations. The number of units owned by Mutual 
Housing Associations in the NeighborWorks® network grew from less 
than 1,200 units at the end of FY 1991 to nearly 1,900 units at the 
end of FY 1992. Projections indicate a continued rapid expansion 
of the mutual housing stock to nearly 3,800 units by the end of FY 
1994. Much of this growth will come from the acquisition of 
housing by existing Associations in the NeighborWorks® network. 

NHSA Secondary Market. A similar level of growth was demonstrated 
by the secondary market operated by NHSA. By combining 
Neighborhood Reinvestment's capital grant with Affordable Housing 
Program funds available through the Federal Home Loan Bank of San 
Francisco and private-sector mortgage capital from World Savings 
Bank, NHSA expanded its loan purchases and originations from less 
than $9 million in FY 1991 to nearly $17.5 million in FY 1992. 



205 



5 

While this growth will continue to an estimated $22 million in FY 
1993, the projection for FY 1994 is uncertain, as the Affordable 
Housing Program funds, which are competitive, may not be captured 
by NHSA. 

Housing and Community Development Training. During FY 1992, the 
Corporation opened its training programs to people outside of the 
NeighborWorks® network. The response has been overwhelming. The 
40% increase in participation in FY 1992 validated both the need 
for and quality of the Corporation's training. The high 
participant rates are continuing in FY 1993 and the pace should 
continue in FY 1994. 

The goal of training is to teach basic skills and to anticipate the 
needs of the field. For example, recognizing that many community- 
based development organizations own and manage multifamily rental 
properties, Neighborhood Reinvestment, along with the Enterprise 
Foundation and the Institute for Real Estate Management (IREM®) of 
the National Association of Realtors, has created a five-day 
course, "Housing Management Training for Non-Profits." Every 
Neighborhood Reinvestment Training Institute includes the course. 
At the end of the course, IREM® conducts an exam for " resident - 
manager certification." 

All of this work can be reported statistically. But the numbers 
only reflect limited aspects of the impact of a NeighborWorks® 



206 



6 

organization. Creating stable environments where families can be 
raised, children can go safely to quality schools, adults have 
access to jobs and amenities such as grocery stores within 
reasonable distances, and all residents participate in the civic 
life of their community, is much more difficult to capture in 
statistics. However, much of the work to revitalize communities 
depends on the commitment and hope of those who live there. 

Partnership and Collatboration 

Times of crisis point out two of the key values of the 
NeighborWorks® network organizations' daily operations: close 
knowledge of the local community and the ability to generate an 
immediate, targeted response. 

Nearly a year ago. South Central Los Angeles erupted in violence 
following the Rodney King verdict . Several neighborhoods served by 
the Inglewood Neighborhood Housing Services and the Los Angeles 
Neighborhood Housing Services were in the midst of the crisis, with 
many blocks and properties severely damaged. Immediately following 
the disturbances, the Los Angeles NHS organized residents, board, 
staff and private-sector partners into clean-up teams which hit the 
streets with brooms and shovels, leading the effort to remove 
debris and graffiti. 

Neighborhood Reinvestment provided an emergency grant and NHSA 
offered its resources on an emergency basis for the purchase of 



207 



7 

loans made by the Los Angeles NHS. Within days, the Los Angeles 
NHS was working with clients. Today, construction has begun on one 
of the 10 blocks identified by residents as a priority, and a 
neighborhood produce market that was destroyed will soon open on 
this block. The owner's insurance and commercial loan credit was 
not sufficient to cover the rebuilding, so the Los Angeles NHS 
provided a loan to fill the gap. 

Greg Franks, a resident and NHS Board member said, "Most people in 
this neighborhood are long-term homeowners. We have a culturally 
diverse block and in helping our neighborhoods, we can also help 
ourselves . " 

Just a few months after the LA disturbances. Hurricane Andrev.' swept 
through southern Dade County in Florida. The Miami -Dade 
Neighborhood Housing Services target area was damaged, but southern 
Dade County was devastated. 

The Miami -Dade NHS immediately linked up with a local community- 
based organization to create a lending program for residents of the 
southern Dade County area. Neighborhood Reinvestment provided an 
emergency grant and enlisted the help of longtime private-sector 
partners for additional funding. Currently, the Corporation is 
working on attracting a $5 million investment in NHSA' s secondary 
market. These funds would enable the purchase of below-market-rate 
loans made to southern Dade County families whose insurance was not 



208 



8 

enough to cover rebuilding and provide loans to new homeowners. 
The latter is crucial to the stability of the community, as 
approximately 25 percent of the residents have left or have 
indicated they are planning to leave. 

Not all crises are as dramatic, but they are nonetheless as real. 
In dozens of cities, NeighborWorks® organizations have been 
struggling with multiple challenges. While a NeighborWorks® 
organization may have particular expertise in housing, to renew a 
neighborhood requires a comprehensive approach often involving 
economic development, anti-crime strategies and social services. 
In collaboration with the Surdna Foundation, the Corporation 
channeled planning grants to six organizations to prepare 
comprehensive, collaborative approaches to neighborhood 
revitalization. Three locations -- Beloit, Wisconsin, South Bend, 
Indiana, and Dimmit County, Texas -- have been chosen for three-year 
implementation grants totaling $600,000. This is a critical step 
in helping community organizations learn to apply the comprehensive 
approach essential to neighborhood revitalization. 

Update on FY 1992 Special Efforts 

Equity Capital 

In FY 1992, Congress provided the Corporation an additional $5 
million appropriation for equity and capital grants to 
NeighborWorks® organizations. In accordance with the legislation. 



209 



9 

the Corporation receives these funds on a quarterly basis through 
the first quarter of FY 1994. 

The demand for these resources has been tremendous. Initial 
requests were narrowed to $11 million and, after detailed review, 
the final $5 million in commitments was determined. The impact is 
both physical (2,600 units with total project cost of $142 million) 
and organizational. With the assurance of equity funds, local 
NeighborWorks® organizations have been able to take on a wide 
variety of projects: 

o In rural Dimmit County, Texas, an equity capital grant of 
$150,000 leveraged an additional $480,000 to implement a 
new construction home -ownership project. The project 
features the construction of 20 single-family detached 
units for lower- income home buyers. 

o In New Haven, Connecticut, the NHS is using an $85,000 
equity capital grant to provide cost write-downs and or 
downpayment /closing cost assistance to low- and moderate - 
income home buyers. The targeted properties are 
abandoned tax-distressed and bank- foreclosed houses. 
Total project cost is estimated at $3.5 million. The 
program is expected to provide assistance to 35 families. 



210 



10 

o The Kalamazoo NHS used its $80,000 equity capital grant 
to create new home -ownership opportunities . The grant 
became part of a $750,000 second mortgage fund that will 
leverage $5 million in first -mortgage dollars. The 
program will create 150 to 175 new homeowners. 

These resources have made a real difference. Because the 
NeighborWorks® organizations are confident that the equity funds 
are forthcoming, they can confidently leverage additional 
resources. Neighborhocd Reinvestment's ability to commit early and 
provide the funds on an as-needed basis has resulted in a prudent 
use of resources on a multiyear basis. The Corporation thanks the 
Committee and the Congress for the opportunity to demonstrate this 
impact . 

Community Development Leadership Project 

Beginning in FY 1992, and with further encouragement in the FY 1993 
Appropriations conference report, the Corporation has been focusing 
on the long-term issue of meeting the ongoing leadership needs of 
the community development field. Neighborhood Reinvestment staff 
are heartened by the recent upsurge in public interest in national 
service and feel that the community development field is a natural 
place for service opportunities -- as is demonstrated through the 
current involvement of NeighborWorks® organizations with VISTA and 
Youth Build. 



211 



11 

The Corporation's challenge is to help create a stable corps of 
community development workers for locally based nonprofit 
organizations. Toward that end, Neighborhood Reinvestment, along 
with six other national organizations, is creating a national 
pension plan. The details are at the final stages, and an 
announcement about the plan is expected in late April. This plan 
will encourage boards of directors to consider pension as a benefit 
(currently, only 30% of community-based development organizations 
offer employer-contributed pension plans) as well as afford a 
measure of portability as an individual moves from organization to 
organization. 

With the Development Training Institute, Neighborhood Reinvestment 
has entered into a collaboration to draft a blueprint for human 
resource development for the community development field over the 
next five years. The components will include some specifically 
designed training and directions for human resource development in 
the areas of recruitment, retention, training and benefits. This 
work, along with the Corporation's special project in documenting 
successful human resource intervention strategies, will help lay 
the groundwork for the strengthening of the community development 
field. 



212 

12 
Cone luB ion 

The Corporation looks forward to FY 1994 with high expectations of 
a stronger and more effective NeighborWorks® network. The 
challenge of continuing to "grow" the activities locally is 
encouraged by the growing interest in community development 
lending, and new forms of partnership between local financial 
institutions and NeighborWorks® organizations are emerging each 
month. Continued progress in FY 1994 hinges on three key 
priorities: capacity-building for NeighborWorks® organizations, 
the growth of home -ownership and Mutual Housing Association 
efforts, and strategic use of capital. 

Capacity-building. The Corporation will enhance NeighborWorks® 
organizations' program capacity and stability by recruiting, 
training and retaining local community development leadership and 
increasing resource development activities for local program 
operating costs. 

Home -ovmer ship zuid Mutual Housing Association Efforts. 

Organizations such as the Milwaukee Neighborhood Housing Services, 
which moved from assisting less than 10 families a year to helping 
over 50 families a year become homeowners, including seven from 
public housing, are expanding their commitment to home ownership as 
a vehicle for community revitalization. 



213 



13 
Leading this commitment is a five-year effort to create 10,000 new 
homeowners among very low- and low-income families. This home- 
ownership initiative will require $650,000,000 in credit and 
provide a great number of jobs in home rehabilitation. 

The Mutual Housing Association approach is expected to grow not 
only in terms of units but in degrees of self-sufficiency. As 
individual Associations have achieved a level of financial 
security, they have begun to offer social services that are 
critical to engendering healthy, renewed communities. Encouraging 
that trend is best done by assisting each Association achieve a 
size allowing for independence. Currently, 89% of the occupants of 
mutual units are at low- or very low- income levels, with on-going 
rental assistance not required. 

In order to support the home -ownership and mutual housing efforts, 
the Corporation will work to expand capacity in NHSA's secondary 
market, particularly in the areas of multifamily housing and first 
and second mortgages . 

Strategic Use of Capital ._ The Corporation will help the 
NeighborWorks* network to aggressively attract and use private- and 
public-sector capital, including HOME and Community Development 
Block Grant funds, pooled conventional lender funds, and the 
special equity grant funds. 



214 



14 
These priority activities will test the Corporation's ability to 
provide the training, enhance the network's financing system 
through NHSA, and find the equity capital to ensure strong balance 
sheets of the existing organizations. However, I have every 
confidence that those who take on the challenge of producing 
affordable housing and safe, stable neighborhoods -- the more than 
3,000 volunteer board members, 1,000 NeighborWorks® organization 
staff members, and the Board and staff of Neighborhood Reinvestment 
-- are equal to the task. 

Thank you for your attention, support and encouragement. 



215 

FY 1994 BUDGET REQUEST 

Mr. Stokes. We will begin with some general questions. 

The administration requests no increase for the activities of the 
Neighborhood Reinvestment Corporation, yet the NRC budget justi- 
fication implies new funding requirements to expand the Neighbor- 
Works network, provide equity capital for current organizations, 
expand technical assistance, improve training, and help retain 
senior staff in NeighborWorks organizations. 

Tell us how you justify the administration's level of funding re- 
quest in light of these demands as shown in your justification. 

Mr. Knight. The portion of Federal funds that are involved in 
the NeighborWorks network really is a small portion of the total 
dollars involved. 

When Neighborhood Reinvestment develops a program we put 
some staff in place locally. We help create a partnership between 
residents, the private industry and the public government. The 
result is an organization that is independent of Neighborhood Rein- 
vestment and then draws in additional resources. Our role is to 
continue to provide training, technical support and, through our 
secondary market, purchase their loans. 

So, once under way, the system continues to operate and work. 
They may draw down funds through the Federal Home Loan 
Banks Affordable Housing Program to relend in their community. 
There may be a group of lenders that form a pool to make loans 
available in their community. So the system itself will continue to 
expand. 

All said, however yes, there is a challenge to our resources re- 
maining flat in this growing system, and that is part of the chal- 
lenge that we have to face every day. 

Mr. Stokes. What was your 1994 fiscal year request of 0MB? 

Mr. Knight. We requested $30.3 million plus an additional $5 
million in equity funds. We would use the additional equity funds 
in the same way we used the 1992 funds, to pass out to the local 
NeighborWorks organizations, to be, frankly, the yeast that raises 
additional funds. 

neighborhood reinvestment's market niche 

Mr. Stokes. What is the NRC's market niche? Can you name a 
service that only NRC and no other organization provides? 

Mr. Knight. Just one? 

Mr. Lewis. I like that. 

Mr. Stokes. All right. 

Mr. Knight. I would have to say a service that no other organi- 
zation provides is our secondary market. For example, a local 
NeighborWorks program makes a loan to someone who is 70 years 
old on a fixed income. The loan is at 1 percent, 30 year term. 
Nobody buys that loan except NHSA. 

Also, I think a service that nobody else provides is the ability to 
organize a community into a partnership resulting in a productive 
and, if necessary, longstanding organization. Nobody else provides 
that service. 

Finally, I think that linking these organizations together and 
monitoring them to ensure that programmatic and financial stand- 



216 

ards are met so that the pubhc's investment — not necessarily 
pubUc government but the pubhc as expressed through private in- 
stitutions — is protected. Nobody else provides this. 

The nonprofit community development community is doing many 
things but carrying the Neighbor Works service mark means some- 
thing. This is achieved by setting standards and monitoring compli- 
ance and productivity. That is what draws in, frankly, the additional 
resources. 

NEED OF NEIGHBORWORKS NETWORK 

Mr. Stokes. What is the most urgent need of the NeighborWorks 
organization? 

Mr. Knight. The most urgent need of the NeighborWorks net- 
work is to have increased funds to put loan originators on the 
streets. This is the most challenging kind of funds to find and 
secure. These programs are lending to people no one else will lend. 
And, they are lending in cooperation with the private sector. It 
is very labor intensive and requires staff expertise at the local 
level. Putting loan originators on the street is the toughest chal- 
lenge. 

Mr. Stokes. NRC's tasks have become more complex over the 
years, moving from technical assistance and direct support for 
NeighborWorks organizations to secondary market activities, 
mutual housing associations, rental housing and other areas. In 
this context, how can NRC assure that its primary mission, that of 
providing technical assistance and support to NeighborWorks orga- 
nizations, does not suffer? 

Mr. Knight. With all due respect, the secondary market was cre- 
ated 20 years ago prior to the Corporation's existence. It came into 
being while Neighborhood Reinvestment was still a task force of 
our current board members, basically the financial regulators. The 
secondary market was created for exactly the reason I shared with 
you — to purchase loans made by local NeighborWorks programs. 

Our technical assistance, which is critical to ongoing operations, 
is also finding ways to use that key resource. 

I think our focus in the last several years has narrowed to hous- 
ing as the network, as you rightly point out, has grown. As the 
demand on Neighborhood Reinvestment has increased and our staff 
has stayed flat, we have had to concentrate on increased housing. We 
have to pull in other organizations to provide services as Neighbor- 
Works organizations get involved in youth training, code enforce- 
ment, anti-crime activities, and other such activities. We rely on 
other entities to provide the technical support. 

nhsa activity 

Mr. Stokes. You are projecting a significant decrease in activity 
for the Neighborhood Housing Services of America. In fiscal year 
1993, NHSA bought $19 million in mortgage-backed instruments 
for first mortgages and multifamily properties. In fiscal year 1994, 
your activity is expected to amount to only $10 million, a 60 per- 
cent decrease from the previous year. 

In your justification on page 88, it states that the sharp decrease 
in activity results from uncertainty surrounding the continuation 



217 

of first mortgages currently offered by World Savings through the 
affordable housing program of the Federal Home Loan Bank of San 
Francisco. 

Explain to us how World Savings and the Federal Home Loan 
Bank of San Francisco worked with the NWOs to provide for those 
mortgages. 

Mr. Knight. First, let me say Midwesterners, like myself, tend to 
be on the cautious side. We have, if the committee is kind, an ap- 
propriation that will allow us to make a grant of about a million 
dollars for capital reserves to NHSA. On their normal 10-to-one 
ratio that would allow them to draw down $10 million in social in- 
vestments. That is the basis for those projections. 

I would like Mary Lee to cover the other part of your question. 

Mr. Stokes. Ms. Widener. 

Ms. Widener. Yes. Mary Lee Widener. Thank you. 

We were able to almost double our activity to nearly $20 million 
as a result of getting awards through the Affordable Housing Pro- 
gram (AHP). We were in there quickly when the AHP funds ini- 
tially became available. 

As time has passed and the scoring has formalized, the scoring 
mechanisms have resulted in a bias against home ownership. It is 
something that we have explained to the staff, and that we are 
working to resolve with staff in Washington as well as at the Fed- 
eral Home Loan Bank of San Francisco. But, what we are being 
told at this point is that the legislation creates that bias and not 
the bank's choice of how scoring is done. 

I can just say that if the scoring methodology stays the way it is, 
we can't compete successfully. Out of a hundred possible points, we 
start out 15 points behind on a retention issue because home own- 
ership isn't given points for retention while rental properties are. 
Some of the rental projects, because of tax credit arrangements, 
have as long as 50 years of retention against zero for home owner- 
ship. That results in a 15-point advantage for rental over home 
ownership. 

And there is no way to make that up unless you all change the 
law or they change the way they score. 

Mr. Stokes. Thank you. 

Why is there so much uncertainty involving the affordable hous- 
ing program in fiscal year 1994? 

Mr. Knight. It is this competitive issue. 

Mr. Stokes. Same issue? 

Mr. Knight. Yes, we must successfully compete and pull down 
the funds or we must find other funds. 

But I have to say — Mary Lee may disagree with me — that the 
Federal Home Loan Bank's Affordable Housing Program has been 
a terrific program, and it is a terrific way to provide a subsidy that 
is flexible at the local level and that enables home ownership. 

Ms. Widener. Can I make one further comment? 

Mr. Stokes. You certainly can. 

Ms. Widener. I really want to make you aware that the social 
investors are there and ready. World Savings has already approved 
another $25 million in social investment through the Affordable 
Housing Program. So we are working on the problem, but we don't 
control the outcome. 



218 

NEIGHBORWORKS LENDING 

Mr. Stokes. I appreciate that. 

Mr. Knight, in your testimony you note that lending from Neigh- 
borWorks' revolving loan funds grew by 17 percent to $26 million 
in fiscal year 1992, and the Corporation expects that these organi- 
zations will reach an annual level of $28 million by fiscal year 
1994. Because this lending depends on the ability of the revolving 
funds to sell loans on the secondary market, how will the momen- 
tum be maintained? 

Mr. Knight. Two ways. First, we believe there will be an influx 
of primary capital, partially through the HOME program and per- 
haps as a result of the increased funds for CDBG contained in the 
stimulus package. Both streams of funds are sources for local re- 
volving loan funds. 

Secondly, since NHSA buys about a quarter of all loans, that 
two million dollar or 10 percent increase really represents a modest 
increase on NHSA's side. We believe the revolving loan fund will 
continue to grow. 

SOCIAL COMPACT 

Mr. Stokes. On page 27 of your justifications, you describe the 
Social Compact, a partnership between the community develop- 
ment leaders and the financial services industry to support local 
nonprofit organizations and lend in distressed areas. NHSA pro- 
vides administrative support for the Social Compact. 

Do you have any quantitative data on the impact of the Social 
Compact on community organizations or on loan availability in dis- 
tressed areas? 

Mr. Knight. We do not have quantitative data. In a sense, the 
purpose of the Social Compact grew out of many of the activities, 
of the bank and thrift industries who have been involved in 
this field for a number of years. We are working with them to 
highlight those kinds of activities to encourage others to begin 
doing it. 

That is really the goal of the Social Compact. It is not meant to 
be a tracking or an accounting device, but it is really meant to be 
an encouragement device. 

We do offer ide£is and suggestions. We offer information to insti- 
tutions that want to get involved. Primarily, it is leading by exam- 
ple. 

HOME OWNERSHIP 

Mr. Stokes. Under the category Preserving Affordable Housing, 
you have announced a national initiative in fiscal year 1994 which 
will result in between 8,000 and 10,000 new home owners in five 
years. Tell us how you expect to accomplish this, apart from your 
ongoing activities and those of the NeighborWorks organizations. 

Mr. Knight. This is a special form of technical assistance. We 
have a number of organizations that are doing what we call full- 
cycle lending. They organize with individuals who right now, today, 
could not qualify to purchase a home, into a home buyers club. 

The participants learn about credit. They start cleaning up their 
credit reports. They start saving funds. They start learning about 



219 

what it means to own a home. If the toilet overflows, you don't call 
the landlord. You figure out how to do it yourself or pay for a 
plumber. 

As the participants become qualified financially to be home 
owners, they get a mortgage, usually from a conventional source. It 
may have a second mortgage placed by the NHS that is then sold 
to NHSA at 2 percent or 3 percent. The property may have loan-to- 
value issues because the cost of purchase, and in some cases rehab, 
exceeds the current appraised values in the neighborhood. 

Following the purchase of a home, that homeowner is in a coun- 
seling class for up to a year to deal with the inevitabilities of that 
first year as he or she learns how to deal with the problems of 
owning a home. 

We are going to have to pull in about $600 million in lending re- 
sources for this effort. We thought if we could form a group of 20 
NeighborWorks organizations — particularly the highest produc- 
ers — ^give it a name, put the spotlight on it, it will help pull in the 
extra dollars. 

So that is really the thrust of the home ownership initiative, and 
we think it is a very exciting opportunity for a number of people 
who right now wouldn't be home owners. 

There is a philosophical point I should cover, Mr. Chairman, if you 
allow. We believe deeply that home ownership is stabilizing and in 
renewing neighborhoods and creating stakeholdership among the 
people who live there. 

In LA, 39 percent of the people are home owners and in the sub- 
urban ring, 75 to 80 percent are homeowners. We have got to 
create some stakeholders in these neighborhoods. Not that every- 
body is going to be able to own, but everybody ought to feel that 
they have the opportunity to own a home. That is critical from our 
point of view. 

Mr. Stokes. But does this also represent a departure from your 
usual strategy of supporting local goals rather than potentially ar- 
tificial national targets? 

Mr. Knight. No. These are local goals set by local programs, 
which we are pulling together. The idea came, actually, out of a 
bull session at a training institute. The needs vary across the coun- 
try. 

With all due respect to Congressman Lewis, when we talked to 
the two California programs involved, they are looking at $60,000- 
per-unit for soft seconds. That is tough money to find. 

We are looking in the Midwest in Battle Creek MI. We are look- 
ing in Chattanooga TN. These programs can create homeowning 
with almost no soft seconds or soft seconds from the city. What 
they need is to put a loan originator on the street to get more 
home buyer clubs going. 

We have a matrix with all these needs and requests, and we are 
now about to launch a strategy to raise all those funds that look dif- 
ferent in all parts of the country. For $60,000 for one home in Los 
Angeles we could probably buy three homes in Battle Creek, but 
that is the need in that particular city. The need in Battle Creek is 
an additional loan originator, home buyer starter. 

Mr. Stokes. Thank you. 

Mr. Lewis, I yield to you. 



220 



CREATION OF NEW ORGANIZATIONS 



Mr. Lewis. Thank you, Mr. Chairman. 

As I presume you know, Mr. Knight, I haven't been on this com- 
mittee for a couple of years but served here from 1983-1991. Your 
program is one of those elements in the whole housing mix that 
matches substance to some of the constructive criticism we get 
about housing programs. 

As you know, the committee has shown some prejudice towards 
slowing the rate of growth of neighborhood work programs, the 
shifting of $250,000 in conference last year is an indication. I ask, 
in a limited budgetary environment such as the one we clearly 
have, are you better off keeping existing community housing orga- 
nizations active or should you focus on increasing the number of 
new housing organizations? 

Mr. Knight. That is a tough question. I think there has to be a 
balance. I think in the justification we described the impact of a 
fairly modest amount of money in New York City that virtually 
doubled their activity to $4 million. I think we put in something 
like $80,000. That seems to me a very, very worthwhile investment. 

On the other hand, we have a lot of requests to start programs in 
new places. What we are in the process of doing this year is review- 
ing with each organization its ability to really perform with a mini- 
mum of our technical assistance. And, frankly, in some cases we 
are finding they cannot. 

And so, there are going to be some organizations with which we 
end our relationship. We will not do that lightly, but we do have to 
answer, I think, the cost-effectiveness question that you are raising. 
And that is a case-by-case determination. 

We do now have, with Roy's leadership, a marvelous monitoring 
program that is able to track and show what is going on locally. 
We meet quarterly to review the results. This is a risk-manage- 
ment approach to determine where should our technical help go 
and where, frankly, we are carrying a program on our backs. 

MONITORING 

Mr. Lewis. Maybe a part of that was in that chart. 

Roy, you might want to comment on it. It is page 67 — the justifi- 
cation which shows the pie chart with a rating of various Neigh- 
borWorks organizations. 

As I read it, about a third of those would appear to be in trouble. 

Mr. Davis. Actually, it is running about 25 percent. We have 
seen gradual increase in performance of our network since we 
started this process. We went from more than a third in trouble to 
about 25 percent, and we will continue to see improvement. But, 
because we have these organizations with very small budgets, we 
will always have some programs in trouble. 

Mr. Knight. About 25 percent of the NeighborWorks organiza- 
tions have budgets of less than $100,000 so they are often one con- 
tribution, one misstep away from a disaster or potential disaster. 
The V-4s are vulnerable. They may be performing and doing a 
good job but not at a level we find satisfactory. The V-5s are clear- 
ly in trouble. 



221 



TECHNICAL ASSISTANCE 



Mr. Lewis. We have got a new kind of partnership here in this 
committee as well. 

I note on page 31 of your justification another interesting chart. 
It essentially categorizes your total budget available as $27,976,000. 
And, as I look at it in simple form, I see a pretty sizable percentage 
of that going to compensation, travel, professional services, et 
cetera, and just short of $10 million going to grants. 

We are in the people business, and we are interested in deliver- 
ing our monies to where people are, so will you help me better un- 
derstand that organizational reality? 

Mr. Knight. When the Chairman asked me about market niches 
the second piece I talked about, very briefly, was the technical as- 
sistance. 

I am always struck when I listen to my lender friends talk about 
risk mitigation and one of the services they almost always offer is 
something called advisory services which are, basically, human 
services. These services assist a borrower to manage his business 
to, obviously, ensure the loans get repaid as well as to build his 
business. 

In a sense, that is what we do. For example, we provide a staff 
person to assist a program that has lost an executive director to 
find a new quality executive director, not just stumble around and 
hire the first person that walks in the door and who may end an 
otherwise good effort. 

We don't view our grants as our main activity. Our grants are 
very small. A median-sized grant was $15,000 last year. That 
doesn't really do much. So it is the effective application of that 
grant tied to a person that makes a difference, a person that can 
understand and assist a program in pulling a situation together. 

Mr. Lewis. Mr. Chairman 

Mr. Knight. It is a curious market niche. I understand. It is a 
little atypical. 

Mr. Lewis. Mr. Chairman, I 5deld. 

Mr. Stokes. Thank you. 

Mr. MoUohan. 

Mr. Mollohan. Thank you, Mr. Chairman. 

Welcome, Mr. Knight. 

Mr. Knight. Thank you. 

Mr. Mollohan. Mr. Chairman, it is a pleasure for me to wel- 
come the Neighborhood Reinvestment Corporation here this morn- 
ing. They are doing tremendous work out there and are hands-on 
help to local communities that wsuit to help themselves. 

When I think of Neighborhood Reinvestment Corporation I think 
of leveraging capability. I think of competency, and I think of 
caring. I think of providing real advisory kind of services to em- 
po\yer local people. And then I think of follow-up and monitoring, 
which is — at least as it relates to West Virginia — are the exact 
kind of services needed to help revitalize neighborhoods. 

And so I want to take this opportunity to express my thanks to 
Mr. Knight and to what I think is an extremely competent staff. 

I have to mention Larry Weston's name here this morning. He 
has worked very closely with some programs back in West Virginia 



222 

and has just done an outstanding job. He is a real professional. He 
is a credit to your organization. 

I want to also mention Jane Stark who works here in Washing- 
ton and represents you so very well. 

I wouldn't ordinarily do that. In fact, I have never done that in 
one of these hearings. But, at least as I have been associated with 
them, their service has been so exemplary that I want to make spe- 
cial note of it. 

Mr. Knight. Thank you. I am honored, 

STAFF RECRUITMENT AND RETENTION 

Mr. MoLLOHAN. Thank you for your help. 

Last year, you testified before the committee, and you expressed 
extreme pleasure in the kind of talent and commitment that was 
represented by your staff. You talked about a program to upgrade 
the strength and the retraining of that staff. I wanted to give you 
an opportunity to address that issue. What progress have you made 
in that effort during the last year? 

Mr. Knight. Under Nat's leadership we have come a long, long 
way in the area of staff training. We have instituted — how would 
you describe it? How would you describe that? 

Mr. Davis. A corporate monitoring system. 

Mr. Knight. But the training. 

Mr. Davis. We have started training our program monitors in a 
very structured way. We have continuing educational requirements 
up to 80 hours a year, specialized training in both technical areas 
and in how to review a program. We have completed the first 20 
hours of training which was provided by a CPA firm, and we are 
on our way toward completing the other 60 hours. 

Mr. Knight. We have also conducted a colloquim where we 
trained a large group of our field staff on organization develop- 
ment. In the colloquim we went through the theory of organization- 
al development. We will continue to do those kinds of staff train- 
ings. 

Next week, as a matter of fact, we will spend a lot of time with 
about 50 percent of our staff going through a series of trainings on 
improving their day-to-day skills in financial management and 
writing. 

Mr. MoLLOHAN. Does that training extend to the organizations 
that you are working with and creating in neighborhoods? 

Mr. Knight. Four times a year we offer extensive training that 
is open not only to NeighborWorks organizations but also to other 
nonprofits. 

To date, we had over 300 individuals from other organizations 
participate out of a total of approximately 800 people that we have 
trained in our two institutes. I expect that will continue this pace 
to the end of the year. 

training 

Mr. MoLLOHAN. What is the focus of that training? 

Mr. Knight. Organizational management, lending processes, a 
whole series of courses around lending and some courses on com- 
mercial. We are running a track aimed at the lending community 



223 

on community reinvestment lending, and a track on financial man- 
agement. If you are running an organization, how do you financial- 
ly manage it? And community organizing, how do you go out and 
involve people and pull them in? 

Mr. MoLLOHAN. That is really the facilitating function, allowing 
people to understand everything from basic neighborhood organiza- 
tion to fairly sophisticated financing schemes. And I think that is 
crucially important to the ability of the communities to marshal 
the tools and the resources needed to upgrade themselves. 

I wonder, are you asking for any increases in that part of your 
budget? 

Mr. Knight. That part of our budget is essentially flat. We have 
found by opening the institutes to other people they pay on a cost 
recovery basis. This has really enabled us to expand the number of 
people who are able to participate, from about 20,000 to about 
36,000 contact hours. 

Mr. MoLLOHAN. Well, that is another example of your leveraging 
the resources you have. This really impresses me about this organi- 
zation. 

Mr. Knight. Well, I have to comment about Nat and his staff. 
When we ran our institute in Los Angeles they recognized there 
were some folks who came from such small organizations that 
couldn't even afford the hundred dollars a day. So, we raised some 
scholarship funds. We did this in Atlanta and at the upcoming in- 
stitute in Minneapolis, we will have scholarship funds available to 
very, very poor organizations. 

EQUITY CAPITAL 

Mr. MoLLOHAN. Now, in your equity capital account, last year I 
believe you received a $5 million plus up; is that correct? 

Mr. Knight. That is right. 

Mr. MoLLOHAN. What had you requested last year, for 1993? 

Mr. Knight. For 1993, I believe we requested from 0MB $10 mil- 
lion, and we requested of the committee zero. 

Mr. MoLLOHAN. That is because 0MB suggested that you request 
of the committee zero. 

Mr. Knight. Yes. 

Mr. Mollohan. Not because you wanted to request of the com- 
mittee zero. 

Mr. Knight. We could have used those resources this year. For 
FY 1994, we requested five of 0MB, and we are requesting of the 
committee zero. We will be spending the remainder of the $5 mil- 
lion from 1992 this year. 

Mr. Mollohan. Well, I happen to think that is a very important 
program. Would you please tell us what you would do if you were 
to get $5 million in equity capital? What would you be able to do? 
That will tell us what you won't be able to do if you don't get it. 

Mr. Knight. I believe that the $5 million would be used very 
similar to the past $5 million. It probably would result in about 
2,000 units and probably pull in, I don't know, $120 million, $130 
million worth of financing from private sector sources. 

This 



224 

Mr. MoLLOHAN. That is impressive leverage when you are talk- 
ing about $5 million creating 2,000 units. 

Mr. Knight. Often, it doesn't take very much, sir. 

In Milwaukee, we had a group of 15 lenders who wanted to get 
more involved in lending. They put themselves together in a pool 
and agreed to take the first mortgage, an 80 percent of loan-to- 
value mortgage that they can sell to Fannie Mae. Then there is a 
pool behind them in which they are buying participations for pro- 
viding the seconds. 

Neighborhood Reinvestment granted a little bit of reserve money 
so there is a five or 10 percent reserve in this pool. The availability 
of the reserve money made the deal happen. 

Mr. MoLLOHAN. You are suggesting that for $5 million you can 
create 2,000 home ownerships that would not exist without it. 

Mr. Knight. Yes, either home ownership or mutual housing. We 
have some organizations that are serving individuals who can't 
afford home ownership. Mutual housing occupants are mixed 
income; 90 percent are below 80 percent of the median; 39 percent 
are below 50 percent of median. We are talking very, very low- 
income people. In certain parts of the country home ownership is 
just not financially feasible. 

SUCCESS OF HOME OWNERSHIP 

Mr. MoLLOHAN. Do you have a yardstick by which you can meas- 
ure the success of your home ownerships? Out of 1,000 home own- 
erships, how many of them will be successful by your measure- 
ment, and how do you measure success? 

Mr. Knight. I would toss out two measurements. First, the 
standard financial measurement, which is substitutions, that is, de- 
linquencies. Ninety-day delinquencies last year, Mary, at the sec- 
ondary market were 

Ms. WiDENER. Still only about 2 percent. 

Mr. Knight. Mary buys with resource, if a loan that is sold to 
her becomes 90-days delinquent, the local program must buy it 
back. That runs about 2 percent which I think is pretty good con- 
sidering that our typical borrower is about 55 percent of median. 

For the second measurement, I wish I could give you a study but 
I think the second measure you see and feel when you walk down a 
street. 

Detroit is a great example. In Detroit, the program wanted to 
make a dramatic difference in the city. They decided that for every 
new homeowner and every homeowner who gets a loan to upgrade 
their home, the program would put in a street lamp — not a street 
lamp — one of those lamps that you put down at the end of your 
walk just before the sidewalk. I don't know what the term for that 
is. 

Mr. Mollohan. Courtesy lamp. 

Mr. Knight. The program put in one of those lights. That is a 
tremendous impact when you walk down that street and you see 
those lamps. The result is others want a lamp and, thus, contribute 
to this neighborhood. 

But I can't give you a study on that. 



225 



USE OF HOME PROGRAM 



Mr. MoLLOHAN. One more question, Mr. Chairman. 

Last year, in the hearing you mentioned that it was too early to 
gauge the effect of the HOME program, what kind of an impact it 
would have on your programs. Can you talk about that in detail 
now? Is the program the asset that you thought it might be? 

Mr. Knight. Yes, the program is going to be an £isset. We are 
going to make it one. 

There is $18 million in a pipeline that local programs have com- 
peted for or received either individually or in consortia. We think 
it is a very valuable resource that can be used. 

At this point, very little of it has actually, I guess, in the vernacu- 
lar, hit the streets. But it is coming, and local programs are plan- 
ning to use it. And, we are excited about it. 

Mr. MoLLOHAN. Thank you, Mr. Knight. Thank you, Mr. Chair- 
man. 

Mr. Stokes. Mr. Torres. 

Mr. Torres. Thank you, Mr. Chairman. 

I would like to echo the comments of my colleagues here this 
morning in commending your organization for the good work you 
have done. Mr. Lewis mentioned he has been here two years. I 
have just joined the committee, but I am not unfamiliar with your 
work, having served on the Banking Committee for 10 years and on 
the Subcommittee on Housing and Community Development. So I 
followed your work quite well, and I want to commend you for the 
good work you have done. 

Mr. Knight. Thank you. 

REQUEST FOR NEIGHBORWORKS ORGANIZATIONS 

Mr. Torres. Let me just ask one basic question. 

In your budget justification, you state that you currently have re- 
quests from nearly 50 communities for assistance to develop the 
new NeighborWorks organizations and an equal number of re- 
quests from existing nonprofit organizations to join your network. 
You state, further, that your resources permit you to only assess 
one-fourth of all those requests and applications, to simply proceed 
in 5 percent of these cases. 

My question is, Mr. Knight, what are the guidelines that you use 
to determine which applications to assess? 

Mr. Knight. If you would permit our Deputy Director of Field 
Operations, who deals with this issue to answer. 

Mr. Torres. Please. 

Ms. Kelly. There are a number of criteria that we use at an as- 
sessment stage before making an on-site visit. But, obviously, an 
on-site visit to meet with the local partnership is the most critical 
factor in making a decision. 

We look at demographic statistics, income in the neighborhood 
and home ownership. We look at all of the factors that go into de- 
termining whether there is a feasibility for a strong local partner- 
ship. Where is it coming from, the neighborhood or from the city 
government support? Are there financial institutions who are will- 
ing to play a role in working with the organization? 



226 

We take a very close look at all of those factors, but, again, the 
research is not scientific. In the on-site visit, we get a very strong 
sense by meeting with a variety of individuals of what the poten- 
tial is, given our capacity and local capacity, to develop a successful 
organization. 

I should comment that, in terms of the applications that we 
have, they literally are from all over the country — from small 
cities, from second-tier cities, from urban areas, from rural commu- 
nities. It is a real mix of America in terms of the hundred commu- 
nities that you mentioned. 

Mr. Torres. That leads me to a second point. I note by your 
roster here the network of states in which you are involved. I only 
see one of our territories, Puerto Rico, and one particular project. I 
note the absence of our other territories. Do you receive requests 
from Guam? From the Virgin Islands? From America Samoa? 

Mr. Knight. We have had a request from Guam, and I am sorry 
to say we did not respond to it because of the tremendous distance 
and cost of an assessment. 

Several years ago we did an on-site assessment in the Virgin Is- 
lands. The challenge there at that time was a lack of private sector 
partners that were willing to commit resources. But that has been 
a number of years ago, right? 

Ms. Kelly. Virgin Islands. Probably three to four. 

Mr. Knight. We are in Fairbanks which is not a territory. 

Mr. Torres. You are where? 

Mr. Knight. In Fairbanks. We have a new affiliate in Fairbanks, 
which is about as far north and cold as one can go and still be in 
the U.S. 

Mr. Torres. Let me ask you — one specific target, the Pico com- 
munity in Los Angeles. Are you familiar with this particular appli- 
cation or have they applied? 

Mr. Knight. I am not familiar with that particular one. 

Ms. Kelly. I don't know that we have received an application. 

Mr. Torres. I received requests from that area, and I didn't 
know whether you were involved with that. 

Mr. Knight. We would probably put them in touch with the Los 
Angeles Neighborhood Housing Services which has looked at a 
number of other neighborhoods that they could serve in Los Ange- 
les. 

Mr. Torres. Mr. Chairman, I yield back the balance of my time 
for more general questions. 

Mr. Stokes. Thank you, Mr. Torres. 

Ms. Kaptur. 

community development lending 

Ms. Kaptur. Thank you, Mr. Chairman. 

And I want to welcome Mr. Knight and the other representatives 
of NRC. I have followed your work. I am old enough to have been 
there since the inception. In fact, I used to do some consulting 
work for what used to be called Neighborhood Housing Services, 
which tells you how long I have been around. So I am familiar \yith 
your work. And, certainly, in my own community in Toledo, Ohio, I 



227 

have watched your particular organization also grow and be 
strengthened over the years. 

I have a couple of questions for you. In the chart that you have 
kindly provided for the record of different types of community de- 
velopment financial institutions, I noticed you did not incorporate 
the community development credit unions which happens to be a 
particular interest of my own. And as President Clinton proceeds 
with his 

Mr. Knight. My apologies. The chart that you must have is the 
earlier chart we used at the Atlanta Training Institute. That glar- 
ing error has been corrected. 

Ms. Kaptur. Oh, great. All right. 

Mr. Knight. Also, the Federal Reserve CDCs have been added. 
This was never intended to be a be-all-and-end-all chart. 

Ms. Kaptur. I think this is excellent, and I have testified on this 
issue before the authorizing committee. 

When President Clinton proposed his community development 
bank idea, I think, first of all, to have his interest in this area is 
really encouraging. But my fear is that the construct was a very 
narrow one as originally proposed. And I think the t5rpe of experi- 
ence that you have in recognizing the broad array of various devel- 
opment organizations that are now operating out there in the coun- 
try can be very helpful to the administration in designing whatever 
it is that these community development banks turn out to be. 

And my own particular interest is in seeing them building on 
what works — what you do works— and connecting those rehabilita- 
tion efforts to financing streams, expanding your own secondary 
market activities, in fact, all secondary market activities in the 
country relating to commercial loans, for example. 

You have a lot of experience in that, and I am just curious as to 
how the administration is using you and your organization to help 
them flesh out what their community development bank proposal 
actually is. Are you involved in their discussions heavily? 

Mr. Knight. No, we have not been heavily involved in their dis- 
cussions. Of course, many of our board members are deeply, deeply 
involved. We do have an invitation from the Office of Thrift Super- 
vision to share with them some of our ideas. 

Ms. Kaptur. All right. I would very much like to send you my 
testimony before the Banking Committee because I think what is 
needed is, now that we have 20 years experience in the field, we 
need to draw some of these experiences together and not just each 
stay in our own churches but really try to do something that bene- 
fits this broad array of groups who are at the point now where — 
with a President who cares about community development. 

And I really think your organization has the type of expertise 
that could help them flesh out their proposals. So anything I can 
do to help you get in the discussion — just know you have an ally 
here. 

Mr. Knight. Thank you. You jogged my memory in mentioning 
your testimony. 

I want to thank you for mentioning us in your testimony and 
also point out to the committee that two members of the Neighbor- 
Works network have testifyied on this subject. Bob Lee from the 
Twin Cities Neighborhood Housing Services, I believe, was on the 



228 

same panel as you were or later in that day and Fran Justa, from 
the New York City Neighborhood Housing Services, submitted tes- 
timony to the Senate Banking committee. 

AFFORDABLE HOUSING PROGRAM 

Ms. Kaptur. Mr. Knight, I also wanted to ask you that the 
money, the $100 million, I think it is in affordable housing — in the 
affordable housing initiative — I hope I have the name right — that 
comes out of the profits of the bank system, how do you relate to 
that money? How does NRC 

Mr. Knight. Very well. The affordable housing program pro- 
vides, through the 12 Federal Home Loan Banks, the opportunity 
to pull down a flexible subsidy in partnership with a conventional 
lender. That is what is very attractive to us, having a conventional 
lender involved. The Neighborworks network has used this pro- 
gram a great deal. 

The secondary market has been a tremendous user of this pro- 
gram. In fact, access to this program is what has fueled its nearly 
doubling its purchases in the last two years. 

Earlier, Mary Lee mentioned her concern of the apparent scoring 
system bias against home ownership and a tilt towards rental. We 
are working to present the home ownership case, and we would 
like to see that money continue to flow towards home ownership. 

In the Atlanta bank, during the last round, less than 11 percent 
of the AHP funds went to home ownership. But it works very, very 
well. 

Ms. Kaptur. Okay. On your secondary market, did you want to 
add something to that, Ms. Widener? 

Ms. Widener. No. 

SECONDARY MARKET 

Ms. Kaptur. I wanted to ask, on your secondary market activi- 
ty — my own view is that you had to create the entity because the 
regular secondary markets weren't open to you. If you were to 
characterize, if you had the power to change the secondary market 
to absorb the loans that you want to move, move up the stream, 
what would you want to do to those secondary markets? Because I 
think that ought to be a part of President Clinton's proposal. 

Mr. Knight. Let me ask Mary Lee to describe the significant dif- 
ferences between NHSA and Fannie Mae and Freddie Mac. 

First, let me recall for the committee that the Neighborhood Re- 
investment Corporation does not load the administrative costs of 
running a secondary market onto the borrower because we are pur- 
chasing loans from very, very low-income people. Rather, we bear 
the administrative costs of running the secondary market. 

The difference in the loans — Mary Lee 

Ms. Widener [continuing]. Is that they are typically below 
market rate and don't meet normal credit standards. We have re- 
payment programs that meet a borrower's ability to pay. We allow 
workouts if a borrower gets into trouble. Basically, they are loans 
that have to fit the ability of working poor people to pay. 

I think that Fannie Mae and Freddie Mac have been very clear 
that the quality of loans they require put into Wall Street have to 



229 

at least be creditworthy. The loans that we buy just don't meet 
normal credit standards. 

Mr. Knight. Also, they are very small. They are a fraction of 
Fannie Mae's loan size. On the rehab side, the loans are down at 
about 14,000. On the first mortgage side they are at 48,000, even 
factoring in the California and New York loans. 

Ms. WiDENER. I think it is really impossible to set up definitions 
of creditworthiness that would be standardized to a point that 
every single person who deserved a loan could fit into it. So I think 
that, no matter what you do with Fannie and Freddie, you are 
going to have a residual group of loans that need to be able to be 
made. 

I hope that we don't move to an overall standardization that says 
everything has to go through a secondary market screen that will 
fit Wall Street. This country can't work that way. For example the 
Federal Home Loan Bank system itself is fundamental to offering 
flexibility through portfolio lenders. 

Ms. Kaptur. In the secondary market, the average size of a loan 
is about $11,500 compared to Fannie and Freddie somewhere, let's 
see, between $48,000 and $94,000. Your rehab loans are $11,000. 

I see your regular home loans are $48,000 compared to $94,000. 
$94,000. You know that is big money in Toledo, Ohio. 

Mr. Knight. Yes it is two or three homes on the West Side. 

Ms. Kaptur. That is a lot of money for Toledo, Ohio. This is one 
of my problems. 

Mr. Knight. But it is only half a home in California. 

Ms. Kaptur. Maybe this is one of — that is one of our problems, if 
you look at where these big systems benefit. In Los Angeles is 
$94,000 big money? 

Mr. Torres. Pretty much. You would be surprised. 

Ms. Kaptur. I wanted to have this discussion only because I 
think what you have to offer the administration, as it puts together 
whatever its community development bank' concept is, must in- 
clude reform of the secondary market. And it must not only be for 
$94,000 loans. 

And we have got to get you in the loop of that discussion because 
you probably have more experience with that than any other 
entity I can think of at the national level. And if one looks at the 
default rates on FHA loans, let's say, that go to families of very 
modest means — they are just regular working people who are 
below the median. There are less defaults on those than at the 
high end, so we can make a good argument in terms of where the 
home is ever5^hing to those families. And these big institutions 
have got to be sensitive. 

I hope I have made my point. But an5^hing you can do to get in 
on that discussion, any way we can help you do that — I think you 
can do something for the whole country and expand your own abili- 
ty to reach the secondary market in new ways. So I thank you very 
much for that. 

And I had a quote here from a newspaper which I seem to have 
lost. Here — here is the question I am going to submit for the record 
for your response. 

Mr. Knight. All right. 



230 

Ms. Kaptur. There was recently an article in the Wall Street 
Journal by a professor from Boston by the name of Glenn Lowery, 
and it was entitled, God and the Ghetto. 

And he stated that, 25 years since the Kerner Commission on 
Civil Disorders, he was stating, the human tragedy that moved the 
Commission is still manifest across our country. And, of course, he 
talks about broken families, failed schools and unemployment and 
so forth. And he cautions, we can't solve our problems only 
through the application of economic — what he terms economic solu- 
tions — ^but instead must also solve them, what he calls value cre- 
ation, most especially through the family and our religious institu- 
tions. 

And what I would like to do is to ask the NRC from your vast 
experience across the country where have you — your job isn't just 
housing. You are building organizations. 

Mr. Knight. Right. 

Ms. Kaptur. And I am very interested in knowing where you 
have seen success that has been more stable over a period of time. 
How have you seen institutional relationships change at the neigh- 
borhood level, for example, where you can actually assure that that 
housing stock remains good simply because people's behavior has 
changed in some way. And what does that teach us about how we 
do redevelopment in America? And how we can support more 
family — strengthening institutions? 

And also more — if it is the church or other fraternal organiza- 
tions that are out there, to really help — what does your experience 
tell us about strengthening these value-creating institutions across 
our society. 

You can't answer that now, but I very much would like to know 
from your experience what you can provide for the record in that 
regard. 

Mr. Knight. I would be pleased to answer that for the record. 
And if the Chair will permit one short story 

Mr. Stokes. Sure. 

Mr. Knight. I was in Milwaukee last spring with Shirlee Bowne, 
Vice Chairman, National Credit Union Administration. One of the 
seven home owners newly created out of the public housing in Mil- 
waukee spoke at the annual meeting and thanked the lenders. The 
President of a major bank in Milwaukee had helped engineer the 
deal that had helped to make her a home owner. 

The institutional change is really the result of a personal change. 
The banker's commitment, his understanding of what has hap- 
pened, his depth of his technical knowledge that he brings with 
him led him yesterday when he called me to say, "we have got to 
find a way to make $35,000 mortgages on a fixed-rate, long-term 
basis and have an outlet for them. I can't get rid of them now, so I 
am making arrangements for three- and five-year balance loans, 
and someone could fairly accuse me of being discriminatory." 

That is a personal change. That is what involvement, being in- 
volved in building and renewing a community results in. But I will 
give you a very complete answer. 

Thank you for permitting the story. 

Ms. Kaptur. Thank you, Mr. Chairman. 

Mr. Stokes. Sure. 



231 

Ms. WiDENER. Could I comment on your question and make an 
appeal to the committee? Because I think I know about what 
George's answer is going to be when it comes back, and his story 
reflects that. 

I think that a large part of the value that has come from the in- 
stitutions that have been built by the Neighborhood Reinvestment 
Corporation comes from home ownership and a relationship in the 
neighborhood as a good place to live and raise families. 

The appeal that I want to make is that the committee do every- 
thing in its power as individuals and as a committee to protect 
home ownership because public policy is increasingly going against 
home ownership. It is not intended, I know, but I think the 
FIRREA legislation creating the Affordable Housing Program is 
one example. 

The report language indicates that it was the will of Congress to 
promote home ownership as well as to promote rental, but once the 
program was implemented and methodology and scoring got in 
place home ownership suffered. And not only does it suffer, the 
scoring forces low income rentals into situations that are not 
always best for neighborhoods. 

I think that it is important to keep in front of us that home own- 
ership, having a piece of America, having a piece of the neighbor- 
hood that one has a stake in, is extremely important to having a 
healthy society and is fundamental to those values that we are 
talking about. 

Mr. Torres. Thank you. 

Ms. WiDENER. So anything you can do 

Mr. Stokes. Are you finished, Mr. Torres and Ms. Kaptur? 

Ms. Kaptur. I am finished, Mr. Chairman. 

TURNOVER OF LOCAL STAFF 

Mr. Stokes. Mr. Knight, in your testimony last year you com- 
mented on the urgent need to address the rapid and destructive 
turnover of senior staff in your network organizations. And a study 
completed in November of 1992 stated: Satisfaction with employee 
benefits is the most important factor determining executive direc- 
tor job satisfaction; ranking higher than salary, education, tenure 
or organizational age or size. 

Do you agree that retirement is the most important factor of all? 

Mr. Knight. Yes, we believe that the lack of retirement benefit 
is probably one of the two most important factors. 

Mr. Stokes. Now I understand that NRC is developing a national 
retirement plan with six other organizations. 

Mr. Knight. That is correct. 

Mr. Stokes. What has been NRC's contribution to this effort? 

Mr. Knight. Our main contribution is to my right. Roy Davis 
joined with LISC, the Enterprise Foundation, the Center for Com- 
munity Change, and a couple of other organizations on a technical 
committee to work with the insurance companies to come up with 
a product. We are about a month away. 

Mr. Davis. Yes, we are about a month away. In fact, on April 
12th, we will be going to the vendor that we selected to iron out 
some of the details. 



232 

Mr. Stokes. Can you tell us at this time how this plan is going to 
work? 

Mr. Davis. It will be a multiple product type of plan. It will be 
able to reach the lowest funded programs to the very large organi- 
zations. We will host educational sessions in addition to those pro- 
vided by the vendor and the selected broker. We will also have one 
of the consortium organizations participating in educating boards 
and employees throughout the country about the need to have a re- 
tirement plan. 

Mr. Stokes. How will NRC help market this plan to its affiliates? 

Mr. Davis. We plan to market through our communications vehi- 
cles and through our training institute. We also plan to train our 
technical staff people on what the program is, so they can go out 
and talk to the local programs about the program. 

Mr. Stokes. Describe for us your other efforts in this area, in- 
cluding training and strategy documentation. How much does NRC 
expect to spend in this area in fiscal year 1993 and 1994? 

Mr. Knight. I can give you the exact numbers for the record. We 
expect to spend a very, very modest amount of money. This is 
really not a money issue as much as an educational issue to ex- 
plain the importance of participating in this plan to organizations 
that may have a $50,000 budget and one staff person. 

CONVENTIONAL LENDING 

Mr. Stokes. You said during testimony last year, the lending 
community is eager to lend in low-income and minority communi- 
ties, so many leaders are offering lending at well below market 
rates. Is this still true? 

Mr. Knight. Yes. It is. It is very true. This year I believe about 
$150 million was lent, and we expect it to continue. The biggest im- 
pediment, frankly, is the ability of local organizations to put loan 
originators on the streets. 

Mr. Stokes. Does this in any way diminish the need for equity 
capital for the NeighborWorks organizations? 

Mr. Knight. No. Actually, it is one of the driving forces in pull- 
ing in these resources. We do try and create some form of reserve 
and the equity is critical for these purposes. Neighborhood Housing 
Services of America's notes which they place with insurance com- 
panies come with no guarantee. This isn t like a Fannie or Freddie 
note that has the implicit backing of the government. This has no 
implicit backing of anybody. 

Ms. WiDENER. Except our word. 

Mr. Knight. So we do need to put in some cash reserve. All 
there is for the social investor is a pool of mortgages that are, by 
definition, unbankable and a five or 10 percent cash reserve 

Mr. Stokes. Your justification 

Mr. Knight [continuing]. And Mary Lee's address. 

Ms. WiDENER. So if you have any money floating around, we cer- 
tainly need additional dollars for cash reserves. 

training 

Mr. Stokes. All right. Your justification shows a decrease in 
training and information category of $420,000 between 1993 and 






233 

1994. Why, in light of the high priority accorded training in the 
large number of NWO staff unable to attend, are you reducing 
funding for this category. 

Mr. Knight. As you recall from last year's conference report, we 
were requested to put $250,000 up against a match from another 
organization that might come forward to develop a human re- 
sources blueprint. Of that 400-and-some-odd-thousand dollar de- 
crease, $200,000 represents part of that decrease assuming we will 
not do this in FY 1994. The rest of the decrease is a fairly small 
percentage of the overall budget. 

Mr. Stokes. You recently — I am sorry. Did you have something 
to add, Mr. Davis? 

Mr. Davis. In fact, the budget for the training component actual- 
ly increased. A minor increase, from $2.1 million to 2.2 million. 

Mr. Stokes. Do you anticipate that training will cost more be- 
cause of the additional participants or less because of the addition- 
al fees and economies of scale? 

Mr. Knight. It will cost, on a per-participant basis, about $32 a 
contact hour. We expect that to remain about the same. 

Mr. Stokes. How much would it cost in fiscal year 1994 to fulfill 
all training requests? 

Mr. Knight. To fulfill all training requests? 

Mr. Stokes. Yes. 

Mr. Knight. You are probably looking at another $500,000, a 
million dollars. I mean a very, very large sum of money. I could 
give a more detailed answer for the record. 

Mr. Stokes. If you would provide it for the record. That would be 
fine. 

[The information follows:] 

Responding to All Requests for Training 

With current resources we are able to meet only 66 percent of requests for train- 
ing from the Neighbor Works* network. To respond to 100 percent of the training 
needs would require an additional $480,000 in funds. This includes $80,000 in in- 
creased staffing, $270,000 in training grants to defray travel related expenses for 
NeighborWorks* trainees, and $130,000 in materials, equipment rental, and trainers 
fees. At this level of funding, training contact hours would increase from 36,000 to 
54,000. 

Many of those requesting training from outside of the NeighborWorks® network 
need scholarship aissistance. An additional $30,000 over the $480,000 would provide 
at least 3,700 additional training contact hours to meet these requests and would 
provide a basis for leveraging other scholarship funds. 

To elaborate, in the last several years we have expanded our training efforts to 
help meet the needs of community based nonprofit organizations that are not mem- 
bers of the NeighborWorks* network. We charge a tuition fee to these participants 
to defray the increased costs of their attendance. For each of our training institutes 
we receive a number of requests for scholarship assistance. Neighborhood Reinvest- 
ment has been providing a small amount of scholarship assistance ($5,000 per insti- 
tute) and is working to attract additional scholarship assistance from other sources. 
For our next institute which will be held in Minneapolis, the Minnesota Housing 
Partnership has provided a matching $5,000 in scholarship funds to assist nonprofit 
organizations from rural Minnesota to take advantage of the training. 

Mr. Stokes. You stated 50 community housing organizations 
have requested membership as NeighborWorks organizations, yet 
you plan to create only two NHSs in fiscal year 1994 and intend to 
decrease funding by $297,000. Of the 50 applicants for NWO, how 



234 

m£iny are likely to qualify for NWO status, assuming no constraint 
on funding? 

Mr. Knight. Of the 50 applicants, I would say probably 30 or 40 
percent right off the bat might qualify. So that would translate 
into 15 or 20 organizations. 

Mr. Stokes. All right. At the present rate of funding, how long 
would it take to admit the petitioning organizations? 

Mr. Knight. A long time — five, six, seven years. 

Mr. Stokes. The chances for survival for a NeighborWorks orga- 
nization are better than for other community housing organiza- 
tions. Tell us how much better. 

Mr. Knight. That is a conclusion that was drawn by the Re- 
search Triangle Institute conducted at the request of 0MB. I think 
it was a general conclusion not drawn on empirical evidence, so an- 
swering a how much question is rather difficult for me. 

Our experience in cities where we create an organization is 
that five or six years later most of the other then existing orga- 
nizations are out of business. Small nonprofit corporations come 
and go over a period of time. Part of our mission is to create that 
continuity in a neighborhood and in a community. I couldn't 
answer precisely how much longer. 

Mr. Stokes. The fraction of total funds going toward grants has 
steadily decreased from 44 percent of total resources in fiscal year 
1992 to 35 percent in fiscal year 1993 to 34 percent in fiscal year 
1994. Can you tell us why? 

Mr. Knight. That is the fall off from access to the equity funds. 
There were 4.2 million of those spent in 1992 and $0.8 million spent 
in 1993. From 1988 to 1994 the amount of grants on an even-even 
basis taking the equity out have gone up. 

STAFF CHARACTERISTICS 

Mr. Stokes. All right. I want to ask you to provide for the record 
a breakdown of your current staff by salary, gender and ethnicity. 
I would suppose or assume that yours is a pretty good one. 

Mr. Knight. Ours is an excellent staff. 

Mr. Lewis. The Chairman has taken my only question for this 
section. 

Mr. Stokes. Then I am going to yield to you for it on that issue, 
Mr. Lewis. 

Mr. Knight. I will give you the chart for the record. 

[The information follows:] 



235 



NEIGHBORHOOD REINVESTMENT CORPORATION 
Average Salary of Staff by Categories 



Category 



% of Staff 



Average Salary 



MANAGERS 



White Males 
White Females 

Blade Males 
Black Females 

Hispanic Males 
Hispanic Females 

Other Minority Males 
Other Minority Females 



27% 
22.5% 


$65,325 
$62,112 


22.5% 
14% 


$70,790 
$56,690 


12% 
2% 


$56,093 
$65,100 


0% 
0% 





PROFESSIONALS 



White Males 
White Females 

Black Males 
Black Females 

Hispanic Males 
Hispanic Females 

Other Minority Males 
Other Minority Females 



18% 

31% 


$41,553 
$36,247 


11% 
24% 


$36,798 
$34,989 


5% 
4% 


$37,748 
$36,989 


1% 
6% 


$36,981 
$34,523 



CLERICALS 



White Males 
White Females 

Black Males 
Black Females 

Hispanic Males 
Hispanic Females 

Other Minority Males 
Other Minority Females 



0% 
19% 

7% 
61% 

0% 

13% 

0% 
0% 



$24,629 

$20,667 
$21,117 



$25,482 



(Prepared 4/7/93) 



236 

Mr. Knight. I am very proud of the work that we have done 
with managers, there are 52 managers in the organization, and 
that correlates roughly with salary. Thirty-eight percent are Afri- 
can-American; 7 percent are Hispanic; 42 percent are women. 

Mr. Lewis. Forty-two percent are women? 

Mr. Knight. Right. If we look at our professional staff which is 
the heart and soul of our organization, 143 of our 210 people. 
Thirty-six percent are African- American; 9 percent are Hispanic; 7 
percent are other minorities; 63 percent are women. I will give you 
the detail for the record. 

Mr. Stokes. I want to commend you for those type of statistics. 
And I can just tell you from the agencies that appear on that side 
of the table we don't generally get the appearance of America that 
you provide for us here today. 

Mr. Knight. Well, thank you. The credit goes to Hugh, Roy and 
Frank and everybody else that is responsible for the hiring. 

Mr. Stokes. We appreciate 

Mr. Lewis. That is an awfully young fellow back there for coun- 
sel, don't you think? 

Mr. Bryson. I am 37 years old, sir. 

Mr. Lewis. Well, I have children that age. 

Mr. Stokes. Thank you, Mr. Knight. We have had a good hear- 
ing. You received a large number of compliments from the mem- 
bers of the subcommittee this morning for the type of work that 
you do. And we appreciate having your colleagues here. 

Ms. Widener, the committee has listened carefully to your com- 
ments this morning, and we are very appreciative of the observa- 
tions you have given us, also. So we thank you for your appear- 
ance. And understand we look forward to seeing you later. 

Mr. Knight. Thank you very much. 

[Questions and answers for the record and the justifications 
follow:] 



237 



Congressman Jerry Lewis 



Status of NeighborWorks® Organizations 
San Bernardino and Montclair 

Question: Could you, for the record, provide a status update on 
your affiliate in San Bernardino? When I served on this 
subcommittee previously you had an affiliate in 
Montclair. How old is the San Bernardino NHS? Have you 
conducted any recent performance reviews on it? If so, 
which of your six risk analysis ratings did you give the 
San Bernardino NHS? Finally, what is the approximate 
annual budget of the San Bernardino organization and what 
percentage of that money comes from non-federal sources? 

Answer : San Bernardino Neighborhood Housing Services. Inc. 

San Bernardino Neighborhood Housing Services, Inc. 
(SBNHS) has serviced the Westside neighborhood since 
1981. It is currently focusing much of its efforts on 
affordable home ownership strategies. In the summer of 
1991, the NHS began construction on five infill housing 
units. This project is still in process. The program 
has a purchase, rehabilitation and resale strategy 
underway at this time. 

Planning is underway for the program's annual "Pride Day" 
in September. Numerous representatives from the 
insurance industry come to the neighborhood to work on 
minor repair, paint and fix-up projects. Over the years, 
this has proven to be a great success in partnership 
building. In 1990, insurance industry financial 
contributions accounted for over one-third (38%) of the 
NHS's operating expenses. 

Neighborhood Reinvestment last reviewed the SBNHS in July 
1991, and is scheduled to review the program again during 
the week of April 19. In the interim, the program 
received technical assistance. Currently, the program 
has received a V-5 (vulnerable) rating by the 
Corporation. The reasons for this rating include: 
failure to conduct a financial audit since 1988, failure 
to tighten and clean up financial management and 
reporting systems, lack of adequate staff, and lack of a 
fidelity bond. In 1990, the NHS's operating expenses 
amounted to $58,400; public (city) funds constituted 18 
percent of the total operating expenses. 



238 



Neighborhood Partnership of Hontclair. Inc. 

The Neighborhood Partnership of Montclair (NPM) 

incorporated in July, 1990. The partnership provides 

services citywide and provides direct services to clients 

in the areas of: financial services, loans, insurance 

counseling, tool lending library, and construction 

rehabilitation. 

A first program review was conducted in February, 1993. 
The review team reports that the Neighborhood Partnership 
of Montclair enjoys a strong partnership with the city, 
a dedicated and supportive board and governance 
structure, a skilled and highly professional executive 
director, an outstanding staff and sound financial 
management systems. 

Neighborhood Reinvestment is working with the program to 
diversify the funding base, to diversify the resident 
base on the board, and to increase lending activity as 
the program moves into its second full year of service 
delivery. During 1991 and 1992, the Corporation 
supported with program with $42,000 in grants for capital 
and operating purposes. 



239 



Congresswoman Marcy Kaptur 

Neighborhood Revitalization: Value Creation & Economics 

Question: Given your experience In neighborhood development, I want 
to ask you a fundamental "thought" question I have been 
considering. I read an article entitled "God In the 
Ghetto" by Boston University professor Glenn C. Loury. 
He stated that 25 years since the Kerner Commission — 
drugs, gangs, violence, unemployment, failed schools, 
broken families, teen pregnancies, disease, despair and 
alienation — are still manifest in spite of two decades 
of public Intervention. He cautions that we cannot solve 
many of the problems of our neighborhoods through 
economics but Instead must solve them through value 
creation, most especially through the family and our 
religious institutions. Do you thing he is right, or 
partly right? If so, what could Congress do to help? 

Answer: For over twenty years. Neighborhood Reinvestment's 
approach to revitalizing distressed neighborhoods has 
been a combination of both economics and value creation. 
Our model is founded on creating a sense of ownership and 
community. In essence, we strive to create stakeholders 
— emotional and financial — in a community. 

Professor Loury places particular emphasis on family and 
religious institutions. In our experience, these 
institutions are Integral to a NeighborWorks* 
organization's ability to renew a community. Other types 
of value instilling, supportive institutions include 
fraternal, social and common interest organizations such 
as PTAs and block clubs. These are vital because whtr. 
people are committed to the health and safety of their 
community there is more chance that the community will 
work to ensure strong schools and safe streets, and deter 
an influx of drugs and violence. 

In concert with the efforts of these types of 
Institutions, there needs to be a base of solid economic 
opportunity. In too many communities, unemployment, 
underemployment and a predominance of minimum wage jobs 
do not allow sufficient resources for families to foster 
a sense of being a stakeholder. It is our belief that 
all neighborhoods have within them the seeds of 
transformation. Neighborhood Reinvestment's role is to 
nurture the process. In valuing resident-led 
partnerships that apply financial tools to capture long 
sought dreams, communities are stabilized. 



240 



For centuries, families have invested, emotionally and 
financially, in creating and protecting their homes. In 
our experience, a family that is able to strongly 
influence its environment through single home or mutual 
ownership is likely to be a family with a stake in the 
neighborhoods health. 

Neighborhood Reinvestment's approach not only builds a 
sense of community within those who live there, but also 
links the other partners — city and private sector — to 
the successes and future of a neighborhood. In doing so, 
values are altered or created within the other partners. 
For example, the lender in Milwaukee whose commitment and 
expertise was essential in creating seven new home owners 
out of former public housing tenants is now tapping his 
technical knowledge to figure out a mechanism to make 
$35,000 mortgages on a fixed-rate, long-term basis and 
have a national outlet for them. 

The combination of value creation and economic investment 
will lead to long-tern community stability. Ingredients 
necessary include: 

o investing in community leadership training. 

o supporting long-term, resident-led organizations. 

working in partnership with the private and public 

sector, 
o strategically investing private and public sector 

resources, 
o advancing comprehensive approaches to neighborhood 

revitalization by encouraging collaborations between 

private entities, public agencies and community 

based organizations. 



241 



HEIGHBORHOOD REINVESTMENT CORPORATION 

FY 1994 BDDOET JOSTIFICATION 

TABLE OF CONTENTS 

INTRODUCTION 

NEIGHBORHOOD REINVESTMENT CORPORATION 

THE NEIGHBORWORKS1' NETWORK 

NEIGHBORHOOD HOUSING SERVICES OF AMERICA 



BUDGETS AND GOALS 

A. Comparisons: FY 1992, FY 1993, FY 1994 

B. Functional Budgets: FY 1992, FY 199 3, FY 1994 

C. Sources and Uses: FY 1988 - FY 1994 

PROGRAMMATIC ACTIVITY 

D. Creation of New NeighborWorks* Organisations 

E. Organizational Expansion 

F. Preserving Affordable Housing 

G. Program Review 

H. Training and Informing 

I. Secondary Market Activities 

J. Administration 

BUDGET VARIANCE ANALYSIS 

K. FY 1993 Estimate Compared to FY 1994 Justification 
L. FY 1993 Justification Compared to FY 1993 Estimate 
M. FY 1992 Estimate Compared to FY 1992 Actual 



APPgyPUt 



N. Public Law 95-557 

O. NeighborWorks* Service Activities 

P. Active NeighborWorks* Organizations 

Q. NeighborWorks* Operating Expenses - FY 1991 

R. Equity Grant Highlights 

S. HOME and HOPE Surveys 

T. Collaboration with the Surdna Foundation 

U. Financial Management Systems Work Plan 

V. Training Institute & Executive Director Training Agendas 

W. National Employee Benefits Consortium Survey 

X. NeighborWorks* Executive Director Transition: 1991-1992 

Y. FY 1992 Audit 

Z. Organizational Chart and Classification/Compensation Plan 



242 



March 25, 1993 

IMTRODnCTZON 

The Neiahl30rWork3« Catalyst 
The purpose of Neighborhood Reinvestment is "to promote 
reinvestment in older neighborhoods by local financial 
institutions working cooperatively with community people 
and local government. . .relying largely on local 
initiative for the specific design of local programs." 
P.L. 95-557, Section 602(b) 

Because people's lives are not neatly categorized like prograuns to fund 
neighborhood revitalization, organizations that serve people through 
neighborhood-wide efforts frequently suffer from strictly limited and 
splintered approaches. Yet within all people and all communities, no 
matter how distressed, are the seeds of transformation. Neighborhood 
Reinvestment nurtures this universal potential for positive change by 
creating and strengthening local partnership-based organizations. These 
organizations, known collectively as the NeighborWorks* network, have 
access to many streams of funding and employ various strategies to renew 
distressed, lower-income communities. 

The Neighborhood Reinvestment Corporation is the catalytic agent for the 
continued growth and development of local NeighborWorks* programs 
serving 4.5 million people in over 151 cities and 46 states. 
Neighborhood Reinvestment accomplishes this mission by: 

o establishing and supporting long-term, resident-led 
partnership organizations that help people invest in 
their homes and commit to improving the well-being of 
their neighborhood; 

o encouraging comprehensive, collaborative approaches to 
neighborhood renewal; 

o providing needed technical services through on-site and 
other consultations and through appropriate targeted 
training; 

o facilitating and expanding housing investment and lending 
strategies that revive private-sector mechanisms to 
address the credit needs of lower-income people and 
reduce discriminatory barriers; 

o expanding NeighborWorks* community development lending 
through locally controlled revolving loan funds and by 
expanding the national secondary market operated by 
Neighborhood Housing Services of America; and 

o seeking and sharing innovative solutions to long-standing 
urban development issues and assisting local 
NeighborWorks* affiliates to tailor these solutions to 
the needs of their communities. 



243 



March 25, 1993 

The national NeighborWorks* network, which Neighborhood 
Reinvestment created and has nurtured for nearly 20 years, is 
renewing American communities through lending and affordable 
housing development, grass-roots leadership development and 
coordinated access to community services. In fiscal year 1992, 
this interconnected system of 183 organizations directed and 
channeled the investment of $198 million to NeighborWorks* 
neighborhoods, created or rehabilitated 6,500 affordable housing 
units, and provided services in the areas of community relations, 
youth employment, lead poison prevention, business/merchant 
organizing and many other neighborhood activities. These efforts 
rebuild self-esteem and pride within individuals as well as their 
communities. 



244 



March 25, 1993 



HSIGHBORHOOD REZMVESTMENT CORPORATZOH 

STATEMEMT OP PRIMCIPLB8 

Neighborhood Reinvestment, chartered by Congress in 1978' as a 
public, non-profit corporation, has established the nation's oldest 
inter-connected system designed to renew America's lower-income 
neighborhoods. Neighborhood Reinvestment's operations and daily 
activities are based on the following principles: 

Creation and Support of Strong. Resident-Led Partnerships 
The partnership approach ensures tailored strategies and 
tools that utilize available resources, capitalize on 
existing strengths and encourage widespread 
participation. These partnerships are led by residents 
and include private-sector participants (typically from 
financial and insurance institutions) and representatives 
of local governments and agencies. 

Comprehensive Community Renewal 

To best achieve comprehensive community renewal, the 
Corporation believes that a neighborhood with a blend of 
socioeconomic groups results in a more stable employment 
base, improved educational opportunities, recreational 
facilities and public infrastructure. 

Strong Commitment of Private-Sector Institutions 
Neighborhood Reinvestment is guided by the belief that 
every responsible individual who desires to own or 
improve a home should have the opportunity to do so. 
Toward that end, the Corporation encourages a variety of 
ways to blend private and public financing. Also, 
Neighborhood Housing Services of America serves the 
private sector lending community and NeighborWorks* 
organizations by providing products that facilitate local 
lending and the provision of credit to responsible 
borrowers . 

Quality Training and Technical Assistance 
Recognizing that community needs widely differ, the 
Corporation delivers training and technical assistance 
tailored to the NeighborWorks* network. 



Public Law 95-557; a copy of this legislation may be 
found under Tab N in the appendix. 



245 



March 25, 1993 

Based on these principles, Neighborhood Reinvestment supports 
NeighborWorks® organizations in using the following methods to 
achieve neighborhood revitalization: 

o Lending to potential home owners who are not 
eligible for conventional or government-sponsored 
lending programs; 

o Rehabilitating existing housing stock for current 
home owners and assisting current tenants to become 
home owners; 

o Producing and managing affordable mutual housing 
and rental units; 

o Improving commercial properties and commercial 
districts which often results in the creation of 
employment opportunities; and 

o Collaborating with other organizations to organize 
against crime, work with local educational 
institutions and plan neighborhood "clean up/fix 
up" days. 

ENVIRONMENT 

Despite the hard work of individuals, non-profit organizations, 
governments and private institutions, many neighborhoods are 
becoming less desirable places to live. In addition to poor 
housing stock, disparities in funding for education in inner cities 
as compared to suburban communities makes living in urban areas an 
unappealing choice. The impact of drug-related crime and its 
glaring notoriety further accelerates the pressure on already 
distressed neighborhoods. 

Neighborhood Reinvestment works with organizations in a wide range 
of communities - from rural Dimmit County, Texas, to core urban 
areas such as South Central Los Angeles. Specific social, economic 
and institutional factors heavily influence Neighborhood 
Reinvestment's approach initially when developing the organization 
and later, when assisting the organization to expand its services, 
meet financial needs and evaluate results. 



246 



March 25, 1993 

Significant factors related to neighborhood revitalization include: 

o Home Ovmershio Rates 

In 1990, the rate of home ownership in core urban 
areas was 49 percent; the national rate was 64 
percent. 

o Income Distribution 

During the 1980s the gap in income distribution 
widened, particularly affecting minority 
conununities . By 1990, the median African-American 
family income was 61 percent of the U.S. median, 
down three points from 1970. There are few signs 
of improvement in the employment and education of 
African-American youth. 

o Home Purchase Prices 

The 'national median purchase price of homes 
increased from $43,000 in 1976 to $134,200 in 1991, 
a 212 percent increase, while median family income 
increased $12,700 to $30,100 during the same period 
(a 137 percent increase) . 

o Affordabilltv 

Even with the recent drop in interest rates, 
affordability for lower-income families remains a 
major issue. In the nation's 44 largest cities, 74 
percent of lower-income families are paying more 
than 30 percent of their income for rent, while 
less than 33 percent are receiving housing 
subsidies. For many lower-income families, 30 
percent of their total income for housing is 
unaffordable, given the costs of food, 
transportation and other necessities. 



247 

March 25, 1993 

KEY AREAS OF FOCOS 

Past successes and a belief in the power of local partnerships have 
led Neighborhood Reinvestment to focus on several key areas. 

Creating New and Strengthening Existing NeiahborWorks* Organizations 

Requests for new NeighborWorks* organizations are typically from 
neighborhood groups, state or city agencies, businesses or 
financial institutions. After, the Corporation assesses local 
resources, it may commit to develop a new partnership. At the end 
of this development process, the NeighborWorks® organization 
becomes an autonomous, state-chartered, tax-exempt, non-profit 
corporation. 

Host NeighborWorks* organizations work in targeted geographic areas 
until that neighborhood is sufficiently stable, with a reasonably 
sound real estate market, visible improvements and an organized 
local leadership capable of monitoring on-going progress. At this 
point, direct services can then be focused on additional 
ne ighborhoods . 

Many of the organizations are small; over 50 percent have annual 
budgets of less than $150,000. To help organizations achieve 
stability. Neighborhood Reinvestment provides a wide range of 
technical assistance. Staff work directly with local boards and 
staff members to determine strategies, prepare proposals, and 
submit financial packages. These efforts are designed to preserve 
the affordable housing stock and to increase the capacity of the 
organizations . 

Training and Standard-Setting for NeighborWorks* Organizations 

Neighborhood Reinvestment provides information and training to 
board and staff members of NeighborWorks* organizations and other 
community-based organizations. Topics range from lending and 
housing development skills to fundraising and community organizing. 
Formats vary from comprehensive five-day national Training 
Institutes with over 400 participants to one-day sessions focused 
on specific local strategies. All emphasize practical, hands-on 
instruction. 

The Corporation publishes standards of performance for 
NeighborWorks* organizations. These standards ensure high-quality 
services, sound financial management practices, and dedication to 
the mission of community renewal for the benefit of lower-income 
households. The Corporation has underteiken a membership chartering 
process which will assure that all members of the NeighborWorks* 
network understand and adhere to these standards. 



248 



March 25, 1993 

To monitor continued performance, NeighborWorks* programs submit 
quarterly progranunatic reports and annual financial audits. 
Approximately every 24 months, organizations are comprehensively 
reviewed on-site. These evaluation tools become the basis for 
provision of technical assistance. With several hundred million 
dollars in loans outstanding, continued solid performance is key to 
on-going stability of the organizations and of the network. 

Expanding Credit Opportunities 

Providing opportunities for credit is a critical function of both 
local NeighborWorks® programs and Neighborhood Reinvestment. 
Virtually all NeighborWorks® organizations operate a revolving loan 
fund which includes funds from Community Development Block Grants, 
city and state governments, foundations and Neighborhood 
Reinvestment. Loans made through these revolving loan funds are 
eligible for purchase by Neighborhood Housing Services of America 
(NHSA) . These loan sales expand the ability of local programs to 
lend to those who otherwise would not have access to credit. 

During the past several years, many financial institutions working 
closely with one or more NeighborWorks* organizations have 
established special lending pools to expand the availability of 
credit. Some work directly with NHSA to expand first mortgage 
availability. Many financial institutions have created their own 
in-house operations and utilize the NeighborWorks® network to 
market their products and conduct preliminary counseling and 
underwriting . 

This has resulted in a rapid expansion of local lending by 
NeighborWorks® organizations and loan purchases by NHSA. Local 
investment from revolving loan funds grew from $21.5 million in 
1990 to $26.3 million in 1992, a 22 percent Increase. NHSA nearly 
doubled its loan purchase and loan origination operation during 
this period, resulting in a total of $17.5 million in activity In 
1992. 



249 



March 25, 1993 

ISSUES TO BE ADDRESSED IN FY 1994 

The Corporation's FY 1994 appropriation request is equal to the FY 
1993 enacted level, yet the pressure for expanded services has 
never been higher. The major issues to be addressed are: 

Interest in Participating in the NeiahborWorks* Network 

The recently enacted HOME program has spurred state and local 
governments to develop and support Community Housing Development 
Organizations (CHDOs) . Many tovms and rural areas, previously 
without successful community-based organizations, want to create 
them and many existing CHDOs want to participate in the 
NeighborWorks* network. During the past two years, several 
existing organizations have become part of the NeighborWorks® 
network. This has required Neighborhood Reinvestment to ensure 
that standards are met and sound lending practices followed. 
During FY 1994, Neighborhood Reinvestment will respond to as many 
requests for inclusion in the network as possible, while providing 
ideas and information to others. 

Availability of Eauitv Capital 

Local NeighborWorks* organizations have limited equity available 
for community development lending. Conventional lending 
institutions create equity capital by issuing stock, receiving 
demand -deposits and earning a profit. This capital is then 
leveraged many times over through borrowing and lending. 
NeighborWorks* organizations raise equity capital primarily from 
foundations and Neighborhood Reinvestment. NeighborWorks* 
organizations have the ability to dramatically leverage the equity 
capital that is available to them; evidenced by the $140 million 
leveraged by the $5 million by Neighborhood Reinvestment to 
NeighborWorks* organizations through the FY 1992 equity capital 
appropriation. 

In FY 1994, Neighborhood Reinvestment will work to raise equity for 
the NeighborWorks* network from foundations and will assist in the 
creation of local lending pools to increase honeownership lending. 
This activity will be balanced with training and technical 
assistance designed to equip NeighborWorks* organizations to raise 
funds for operating and program service delivery costs. 

Growth in Activities of NeighborWorks* Organizations 
Demand Greater Technical and Financial Assistance 

Activities of the 183 NeighborWorks* organizations are rapidly 
expanding; revolving loan fund lending expanded by 17 percent from 
FY 1991 to FY 1992, and other direct investment expanded by 38 

10 



250 



March 25, 1993 

percent. The growth of mutual housing units was equally drzunatic, 
increasing 56 percent, from 1,198 to 1,868 units. A similar 
increase is projected in FY 1993. This accelerated activity 
creates increased demand for technical assistance, so the 
Corporation is exploring creative ways to respond. 

One such approach has been to organize 20 NeighborWorks* 
organizations into a special effort to expand home ownership. The 
goal is to enable over 10,000 families to become home owners during 
the next five years. The major components of this effort include: 

o Recruiting and educating buyers, often through Home 
Buyers Clubs; 

o Obtaining first -mortgage products; 

o Providing second mortgages to lower monthly 
payments, close gaps in rehabilitation financing, 
reduce the need for private mortgage insurance and 
reduce closing costs; 

o Expanding NHSA's capacity and recruiting other 
secondary financing sources; and 

o Providing technical assistance to raise the funds 
necessary to make this effort a success. 

Given the increase in the number of NeighborWorks* programs owning 
affordable rental units and the growth of mutual housing units, 
property management has become more important. Neighborhood 
Reinvestment, together with the Institute for Real Estate 
Management (IREM*) of the National Association of Realtors and the 
Enterprise Foundation, has created an entry-level course in non- 
profit property management. Successful completion of the course, 
combined with other IREM* requirements, enables non-profit staff 
members to be certified by IREM* as property managers. 

As the NeighborWorksO network continues to grow, the demands on 
executive directors increase. With the Development Training 
Institute, the Corporation is studying the human resource needs of 
the community-based development field and developing an approach to 
addressing those needs. Under a related effort during FY 1993, in 
collaboration with several other organizations, an employee 
retirement plan will be offered to community-based organizations 
and models for successful recruitment and retention of quality 
executive directors will be developed. 

Environmental issues may have an increasing impact on the 
rehabilitation activities of NeighborWorks® organizations. For 
example, in Oakland, California, the NeighborWorks* organization 

11 



251 



March 25, 1993 

received a $250,000 grant from the City to provide deferred loans 
to homebuyers in targeted neighborhoods. However, during the first 
transaction, the City invoked stringent environmental compliance 
requirements that resulted in a costly environmental impact review 
and additional costs to the homebuyers. Neighborhood Reinvestment 
is watching cases like this closely and will increase technical 
assistance around this issue as necessary. 

Capacity of NHSA to Absorb the Growth in Demand 

A major challenge during FY 1994 will be to foster the growth of 
NHSA so that it can meet the rapidly expanding needs of the 
NeighborWorks* network. By FY 1994, the first rounds of HOME 
financing will be lent. There is likely to be an increase in 
activity with HOME funds — already NeighborWorks* organizations 
are projecting over $18 million in activity involving over 2,000 
units. This will increase the demand for NHSA's purchase of home 
acquisition/rehabilitation mortgages. 

Demand for Increased Access to Training Institutes 

The response from individuals and organizations outside of the 
NeighborWorks* network invited to attend training institutes has 
been overwhelming. In FY 1992, average attendance at training 
institutes nearly doubled; the total number of training contact 
hours increased by 40 percent to nearly 37,000 hours. In FY 1993 
and FY 1994, participation is expected to continue at comparable 
levels. 

Recently, foundations based in the same geographic areas as 
institute sites have offered scholarship funds to interested 
participants who otherwise might not be able to attend. This will 
be enormously helpful in expanding the training institute's impact. 



12 



252 



March 25, 1993 



THE HEZ6HB0RW0RKS* HBTWORX 



Each of the 183 NeighborWorks* organizations is a locally initiated 
and controlled corporation, federally tax-exempt under Section 
501(c)(3) of the Internal Revenue Code. Each NeighborWor)cs« 
organization has a local board of directors composed of community 
residents and representatives of the private sector and local 
governments . 

Although lending for single-family and multifamily housing is the 
primary tool used by NeighborWorks* organizations to renew lower- 
income neighborhoods, this activity is complemented by other 
services that ensure a comprehensive and integrated approach to 
neighborhood revitalization. For example, many organizations 
coordinate and, in some cases, carry out youth training progreuns, 
after-school programs, commercial strip revitalization, and the 
management of single-room-occupancy hotels. A sampling of such 
services is provided below. (A full listing can be found in the 
appendix under Tab O.) 

Type of Service peypent 

Clean-Up Projects 63 

Code Enforcement 56 

Business/Merchant Relations 48 

Leadership Training 41 

Lead Poison Prevention 30 

Youth Employment Project 24 

Job Training 22 

Property Management Training 21 

Drug/Alcohol Prevention 16 

Nationally, the NeighborWorks* network is active in 151 cities 
serving 358 neighborhoods containing 4.5 million Americans. A list 
of NeighborWorks* cities can be found in the appendix under Tab P. 
In 1992, the NeighborWorks* network created or rehabilitated 6,500 
units of affordable housing; of these, nearly 1,400 units were 
secured for new home owners. Of the $198 million invested in 
NeighborWorks* neighborhoods in 1992, $26 million was directly 
invested by NeighborWorks® organizations and $172 million in 
private- and public-sector resources were directed by 
NeighborWorks* organizations. 

The charts on the following pages illustrate characteristics of 
NeighborWorks* neighborhoods. 



13 



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ICS 



255 



Family Median Income in NeighborWorksf^ 
Organizations Neighborhoods 



(IN NUMBER OF NEIGHBORHOODS) 



350 

300 
N 

J 250 

9 

h 200 

b 
o 
g 150 

h 

o 100 

o 
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302 






B Very Low/Low 

E3 Moderate 

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In 0» appnudmalBiy 450 active and sslt-rallant NelghboiMVOrto* nelgMiortioods, 69% ol people 
tanrad are In Uie vsiy-low and low-lnconie brackets; 98% ol the lamllles are at the very-low, 
low- or moderate-Income levels. 



15a 



(57-798 O— 93- 



256 



March 25, 1993 

The baclcbone of a NeighborWorks* organization is its revolving loan 
fund. The revolving loan fund is used for residents who fail to 
qualify for conventional bank or thrift financing for repairs, 
rehabilitation and hone purchases, and for properties that are 
important for the renewal of a neighborhood but that are not 
attractive to conventional lenders. The national asset base of 
local revolving loan funds is $202 million. To leverage these 
investments, the NHSA secondary market enables each NeighborWorks* 
organization to sell its loans and replenish its pool of funds. 
See the "Neighborhood Housing Services" tab for more detail. 

Loans made from revolving loan funds are typically small — the 
NeighborWorks* network's average rehabilitation loan is $11,434. 
The median family income of the typical borrower is 55 percent of 
the national median. Cumulatively, these small loans in 
NeighborWorks* neighborhoods stem neighborhood decline. 

In addition to direct lending, NeighlsorWorks* organizations 
collaborate with private-sector lenders to create "lending pools" 
and other mechanisms that funnel capital to lower-income and 
moderate- income residents. Lenders participate because it enables 
them to make loans in geographic and economic markets that they 
otherwise might not penetrate, at a cost they can afford. By the 
end of 1992, $19 million was lent from these pools and another $65 
million was available. 

To stretch limited resources as far and as strategically as 
possible, NeighborWorks* organizations often combine their loan 
funds with conventional resources. The following page illustrates 
how the NHS of Baltimore utilized this tandem approach and also how 
it strategically used its own revolving loan fund to package a loan 
for a family that would bring a long-term positive effect to a 
drug-iiq>acted street. 



1< 



257 



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258 



March 25, 1993 

Effective comnunity development lending must be coupled with other 
activities to ensure safe, sound investments. Buyers must receive 
counseling prior to purchase; rehabilitation of housing must be 
monitored; and post-purchase counseling is often necessary. This 
type of "full-cycle" lending consumes resources and time, but is 
necessary when dealing with individuals who have credit problems or 
lack of experience with borrowing, or who are dealing with 
properties that have title problems or severe rehabilitation needs. 
For exai^le, in 1992, $3.4 million was lent by the Twin Cities 
Neighborhood Housing Services to 220 clients living in four 
different neighborhoods. Key to the Twin Cities NHS's 
homeownership strategy was the provision of pre-purchase counseling 
to 482 families, of whom 94 ultimately purchased homes. Equally 
important, 264 f2uiiilies received post-purchase counseling. 

Resources for covering the cost of operations and delivery of 
program services are difficult to obtain. While capital is 
important, it is of limited use to an organization constrained by 
a shortage of staff emd tools. The median operating budget for the 
NeighborWorks* network is $148,500, so the partnership is essential 
to a NeighborWorks* organization in raising funds for operating 
expenses. Neighborhood Reinvestment's grants to these organiza- 
tions enable them to leverage private- and public-sector support 
for additional operating funds and funds for progreuns and services. 
A breetkdown of NeighborWorks* organizations' operating expenses by 
quartile can be found in the appendix under Tab Q. 

The following graphic presents contributions to NeighborWorks* 
orgimizations by contributor type from 1987 through 1991. 



18 



259 

Contributions to NeighboiWorics® 
Organizations by Contibutor lype 







1987-1991 






ConlriMor Typ* 


1W7 


lies 


1989 


1990 


1991 


Bank 


$ 2.209,770 


$ 1,693.296 


$ 2.519.848 


$ 8,735,002 


$ 6,514,928 


Bu>irwu(1) 


1,227.078 


1.067,838 


1.148.515 


1J31.167 


2,178,985 


Foundation 


1.889.601 


1,765,695 


2.830.196 


3.118,527 


4,678.043 


Government 


19,415.299 


18,107,295 


30.505,491 


24,388,780 


33,944,127 


Inturinct (2) 


1,400,134 


1,146.144 


1,798,420 


1,486,390 


2,159,626 


Nonprofit (3) 


1,070,355 


492,684 


1,588,864 


2.259,300 


1.837,329 


Thrin(4) 


1,287.566 


1,014,411 


1,198,980 


1,937,987 


3,613,445 


Utility 


799.633 


1,024,663 


1,185.325 


935.244 


413,116 


TOTAL 


$29,299,436 


$26,312,026 


$42,775,639 


$44,192397 


$55,339,599 


# of Orgs. Reporting 


137 


135 


152 


150 


153 



Avg. Contributions per 

NeighborWorl(s»Org. $ 214,000 $ 195,000 $ 280,000 $ 295.000 $ 362.000 



Tin contrlbuaon shown foreacli categotY Isan aggregalBd flgure that represeiitsall funds rccelvsd 
lor genoral operations, special projects and/or revolving loans. 

(1) Indudts corporations, local businesses, mortgage companies, teal estate companies and 
lltie companies. 

(2) Indudes life, health, mortgage and dtle Insurance companies. 

(3) Includes churches, oOter (e.g.. United Way, program hindralsers, miscellaneous), private 
Individuals and educational Institutions. 

(4) Includes credit unions, savings banks, and savings and loan associations. 



19 



260 



March 25, 1993 



KOTXna. HODSZHQ ASSOCIATIOMS 



For fanilles that cannot afford hone ownership, mutual housing may 
be the best alternative. Encouraged by Congress In the early 
1980s, Neighborhood Reinvestment adopted the concept of mutual 
housing from Western Europe - this concept has now turned Into a 
reality for over 1,800 households In the Dnited States. Mutual 
housing Is a significant step up from rental housing because It Is 
permanent housing that offers lower- and moderate- Income residents: 

o security of tenure; 

o long-term affordabillty; 

o a voice In the management of their housing; 

o quality housing that Is built and maintained to standards 

that ensure long-term, multl-generatlonal use; and 
o an opportunity to be part of a stable community. 

A mutual housing association is a private, non-profit, 501(c)(3) 
partnership organization established to develop, own and manage 
affordable housing in the community's Interest. Membership is 
comprised of mutual housing residents and potential residents, 
representatives of municipal and state government, and leaders from 
businesses and the broader community. 

The mutual housing association as a corporate entity (rather than 
members as individuals) owns the housing units and complexes. 
While residents do not own their units, their lifetime right to 
occupancy instills pride of ownership. Residents "own" the 
organization that otms their housing. By participating on local 
resident councils and electing representatives to the board of 
directors, residents have the majority voice in all decisions and 
actions of the mutual housing association. 

Included in the NeighborWorks* network are 12 mutual housing 
associations that o%m and manage 1,868 units of affordable housing 
— 50 percent of these units are occupied by low- income households, 
39 percent are occupied by very low-income households. 

For two years, existing mutual housing associations have been 
focused on increasing the number of units to a level of 500 to 800 
units per association, thereby achieving self-sufficiency. New 
associations joining the network must have at a minimum 200 units 
of housing under their ownership. The following page Illustrates 
the growth in the development of mutual housing units since 1988. 



20 



261 



Development of 
Mutual Housing Units 



700 
600 
500 
400 
300 
200 
100 







^-v (iSsi 




^ 


■v-' 






^"■^ 








^^^ 














Up to 
1988 



1989 



1990 
risol Xaax 



1991 



1992 



Mutnl bouing piDvldes u iltBrnaitra form Of ownenhip lor ttion N(n do not dcsira or ara unible 
to oMiln I sfngJo-timlly dwlllng. Mutual Houiing Associations, a gmrlng tores In IDs national 
NslghboiWoila* nstwork. had dmtlopsd 1,868 units of mutual twuslng by ttw doss of 1992. 
IVn nnr Mutual Housing Associations «ra addsd to the netmili during Uia yaai; and llva new 
assodadons ait currently being developed. 



21 



262 



March 25, 1993 

HZZ6HBORHOOD BOUSIMG SERVICES OF AMERICA 

Mission 

The primary mission of Neighborhood Housing Services of America 
(NHSA) Is to utilize private-sector support to operate a secondary 
market created to replenish revolving loan and capital funds of 
local NeighborWorks* organizations. 

Using their own revolving loan funds, NeighborWorks* organizations 
make loans that otherwise would not be available to lower- and 
moderate- Income borrowers for home repair or home purchase. By 
replenishing local loan funds to meet the needs of additional 
borrowers, NHSA's loan purchases help to maintain the momentum of 
neighborhood revitalization. Since 1974, NHSA has played an 
intrinsic role in the success of the NeighborWorks* network by 
purchasing and originating more than $75 million in loans from 139 
of the 183 NeighborWorks« organizations. 

Private-sector, institutional investors meUce social Investments by 
purchasing secondary market notes backed by loans purchased by 
NHSA. At the start of FY 1993, NHSA had $90 million in active note 
purchase agreements with 15 social investors, including such 
institutions as Allstate, AEtna, Equitable, Wausau, World Savings 
and Downtown United Presbyterian Church. Since 1974, NHSA has 
experienced only 24 loan defaults and has an average delinquency 
rate of 2.05 percent. 

In addition to operating a secondary market, NHSA offers a wide 
array of key financial services to the NeighborWorks* network. 
This includes first mortgages for single-family structures as well 
as development loans and bridge financing for multlfamlly 
development. 

MH8A Loan Products 

Owner-Occupied Housing Re habilitation Loans 

The NHSA secondary market purchases rehabilitation mortgages at par 
and with recourse from local NeighborHorks* organizations and then 
sells them to private Investors, including Insurance companies, 
savings banks and pension funds. Typically, these are second 
mortgage loans made because the resident cannot obtain conventional 
financing. 

In the absence of this secondary market, NeighborWorks* 
organizations' revolving loan funds would revolve very slowly, 
since loan repayment schedules are extended over several years to 
meet the borrower's ability to repay. The secondary market 



263 



March 25, 1993 

provides the local revolving funds with an infusion of capital 
needed to maintain the momentum of upgrading a neighborhood. 

There is no other secondary market available to purchase these 
unconventional loans. Many NeighborWorks* loans are made at below- 
market rates and with flexible terms, based on the borrower's 
ability to repay the loan. Neighborhood Reinvestment's capital 
grant to NHSA is used for reserves required by the social investors 
and, when necessary, to enhance the yield to the investor. Even 
when this occurs, the notes still do not provide the highest rate 
of return and are considered "social investments." Local 
NeighborWorks* organizations service the loans and forward the 
payments to NHSA. To protect the investor, the local 
NeighborWorks* organization agrees to substitute a new loan for any 
delinquent loan. 

Owner-Occupied Home Purchase Mortgages 

Neighborhood Housing Services of America, in partnership with World 
Savings, the PMI Insurance Company and the Federal Home Loan Bank 
of San Francisco, works with local NeighborWorks* organizations to 
offer first mortgages to families purchasing homes. In addition to 
providing homeownership opportunities for lower- and moderate- 
income families in 44 NeighborWorksO cities, this initiative helps 
NeighborWorks* organizations tackle the problem of severely 
deteriorated properties and offers in-fill housing possibilities. 
The program also allows participating NeighborWorks* organizations 
to provide borrowers with secondary financing to cover needed 
rehabilitation and closing costs, or to make overall costs 
affordable. 

The program has expanded to include buyers with incomes up to 115 
percent of their area's median income. Activity has been 
substantial, with approximately $500,000 in loans currently being 
closed weekly. Over $10 million in World Savings loans have 
already been closed or committed. The Affordable Housing Program 
available through the Federal Housing Finance Board has been key to 
the success of this effort though the availability of resources 
through this program is uncertain for FY 1994. 

Mortgages on Multi-Unit Property Owned bv Non-Profits 

NHSA provides permanent financing for multi-unit or rental housing 
owned and managed by non-profit organizations or mutual housing 
associations. Resources for this initiative are limited, so 
generally first mortgage loans are made to NeighborWorks* 
organizations for developments of 5 to 32 units, and second 
mortgage loans are provided for larger properties, with the second 
mortgage covering a relatively small gap in the available 
financing. 

23 



264 



March 25, 1993 



DevelQDllient Bridge Loans 

This program was developed because of the extreme difficulty to 
obtain development financing for non-profit organizations that are 
developing complex housing proposals. Facilitated by a $1.9 
million line of credit from the National Cooperative Bank 
Development Corporation (NCBDC) , NHSA makes short-term loans to 
NeighborHorks* organizations to finance recoverable pre-development 
costs, property acquisition, portions of construction financing, 
and working capital gaps until final financing is put into place. 



24 



265 



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25 



266 



March 25, 1993 

FY 1992 FY 1993 FY 1994 
Actual Estimated Prgjggtgd 

Revolving loan fund 

rehab second mortgages S 3,659,000 $ 3,000,000 S 3,000,000 

First Mortgages 11,426,000 16,600,000 6,000,000 

Multifamily 2.405.000 2.400.000 l.QQQ.OOO 

TOTAL $17,490,000 $22,000,000 $10,000,000 

In FY 1994, the Corporation has set a goal of $10 million for NHSA 
activity; however, the $1 million grant from Neighborhood Reinvest- 
ment may not be sufficient to satisfy subsidy and reserve require- 
ments to ensure the attainment of this goal and investors for $1.5 
million are not yet identified. A table that indicates the 
proposed source amd subsidy/reserve cost of each of these funded 
goals follows. 

PROPOSED DIRECT OUTSIDE INVESTMENTS TO NHSA IM FY 1994 

REHAB FIRST MDLTI- 

INVESTOR LOANS MORTGAGES FAMILY TOTAL 

World Savings $2,000,000 $4,500,000 $ $ 6,500,000 

State Farm 1,500,000 1,500,000 

NCBDC 500,000 500,000 

Undetermined 1.000.000 fi 500.000 1.500.000 

TOTAL $3,000,000 $6,000,000 $1,000,000 $10,000,000 

SUBSIDY AND RESERVE REQUIREMENTS OF 
PROPOSED DIRECT OUTSIDE INVESTMENTS TO NHSA IN FY 1994 

REHAB FIRST MULTI- 

INVESTOR LSMS MORTGAGES flAKILX I2I&L 

World Savings $200,000 $450,000 $ $ 650,000 

state Farm 150,000 150,000 

Undetermined 100,000 50,000 150,000 

Loan Loss a 50.000 a 5C>,0<?P 

TOTAL $300,000 $650,000 $50,000 $1,000,000 



2C 



267 

March 25, 1993 

Measures of Impact 

The following pages illustrate the quantifiable impact of NHSA's 
loan products. Behind these numbers are stories of secure homes, 
improved qualities of life and revitalized neighborhoods. For 
example, the NHS in Ithaca, New York used the NHSA secondary market 
to underteUce a city-wide housing rehabilitation program. Over a 
ten-year period, the Ithaca NHS has replenished $1,020,000 in loan 
funds. This assistance, along with other public- and private- 
sector sources, has resulted in the rehabilitation of over 600 
neighborhood properties. 

Social Compact with America's Distressed Neighborhoods 

The Social Compact is an initiative that developed out of the 
spirit of partnership between non-profit bousing and community 
development leaders and financial services industry executives 
committed to improving the quality of life in America's lower- 
income neighborhoods and rviral communities. This is accomplished 
by increasing the flow of capital available for community 
development lending as well as expanding support for effective 
neighborhood-based, non-profit organizations. The Social Compact 
achieves its objectives by "leading through example." It develops 
and publicizes industry success stories of service and investment 
in America's lower-income neighborhoods. The Social Compact 
promotes the evolution of voluntary industry standards for 
community reinvestment which result in tangible and quantifiable 
improvements in neighborhood conditions. Members of the Leadership 
Group contribute financial and in-kind support necessary to carry 
out activities of the Social Compact. Administrative support is 
provided by NHSA. The Social Compact is composed of nearly 200 
financial services institutions that have entered into a written 
commitment to support the Social Compact mission. Additional 
institutions will be recruited aggressively this year with the 
active support of several trade associations. These institutions 
agree to: 

1) sustain and, where possible, increase their financial support 
for effective neighborhood-based, non-profit organizations working 
to strengthen lower-income neighborhoods; 

2) undertake meaningful efforts to assure delivery of services 
responsive to the unique needs of these markets, increase the flow 
of capital, and Improve the quality of life in lower-income 
neighborhoods; 

3) assign members of their senior management to coordinate their 
companys' involvement in the Social Compact through participation 
in an annual survey, the awards program and other opportunities as 
they evolve. 

27 



268 



nEM MconoMy mnut cmumw ■insuHnts 




1978 1980 1982 1984 1986 1968 1990 1992 
rtmeml Xmt 



Neighbortiood Housing S«rvlc8s of America 
(NHSA) operates a unique secondary marltet 
to purchase loans made by NeighborWorls* 
organlzatjans to low-incom e people at affon)- 
able ratBS and terms. NHSA's financing pro- 
vides the NeighborWorle* organijations with 
fresh capital. NHSA is backed by sodaily 
conscious investors including major insur- 
ance companies, thrifts, pension funds and 
ether private sources. Total cumulative In- 
vestment at the end of fiscal year 1992 was 
$96.7 mlllioa 



Comparison of Aweraga Secondary Maricet Loan Siza 

(In ttiousanti) 



'9 $eo 

a 



S20 




^^ 




© 

Kxwwwl 




Q Federal National 
Mortgage 
Association 
(Fannie Mae) 
Borne Purchase 

Q NHSA Bone Rehabs 

S NBSA Borne 
Purchases 



Home purchase loans sold on the Neighbor- 
hood Housing Services of America (NHSA) 
secondary marl(et are, on average, substan- 
tially smaller than those sold by conventional 
lenders to Fannie Mae ($48,075 compared to 
$94,800). The NHSA secondary market also 
purchases rehab loans (average size: 
$11,434). 



NHSA Secomianr Marint DeangraiiMcs 



32 

30 

o 26 

u 

• 24 

D 22 

-20 
IS 
16 



Median IncomBs 



Neighborhood Housing Services of America's 
(NHSA's) secondary market enables 
NeighborWorks* organizations to serve 
neighborhood residents whose incomes are 
far below the national median. 

Note: Incomes are in 1991 constant dollars 
adjusted for household size. 
Source.- NHSA (derived from NHSA records 
and U.S. Bureau of the Census data). 



•us Median 



■ NelghborHorks 
Organizations' 
Neighborhood Median 

28 



269 



March 25, 1993 



HBIOHBORHOOD RBZMVESTMKIIT CORPORATZOH 

FY 1994 BUDGET JUSTIFICATION TABLES 

The tables under this tab compare Information related to four 
different budget presentations. All sources of funds are 
Included, both appropriated and non-appropriated. The four 
budget presentations are: 



FY 1992 Actual 

The FY 1992 audit conducted by Price Waterhouse is in the 

appendix. 



FY 1993 Justification 

The FY 1993 justification was prepared in February of 
1992 based on a $27,976,000 appropriation request at the 
level recommended by the President. 



FY 1993 Estimate 

The current estimate for the use of FY 1993 funds is the 
same as the FY 1993 budget adopted at the December 2, 
1992 meeting of the Board of Directors of Neighborhood 
Reinvestment . 



FY 1994 Justification 

The FY 1994 justification is based on the $27,976,000 

appropriation request at the level recommended by the 

President. 



Compares these four budget presentations by progran 
function. 

Compares these four budget presentations by expense 
category . 

Table 3 

Compares the activities and output measures by progran 

function under each of these fotir budget presentations. 



29 



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32 



273 



March 25, 1993 



PROORANMATIC, FUHCTIONXL BODOETS 

The next four tables indicate the line item expenses for each 
program function under each of the budget presentations. 

The final table in this section compares Neighborhood 
Reinvestment's sources and uses of funds for the fiscal years 
1988 though 1993. ' 



33 



274 






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38 



279 

March 25, 1993 

MAJgR PROGRAM FUNCTIONS OF neighbo rhood REINVESTMENT 

This tab Includes a budget presentation for each of 
Neighborhood Reinvestment's major programmatic functional 
activities. For each progriui function, we have indicated the 
following information: 

* FY 1994 goals 

* Summary of FY 1994 budget request 

* Changes between FY 1993 estimate and FY 1994 
justification 

* Changes between FY 1993 justification and 
FY 1993 current estimate 

* Program description 

* FY 1993 goals 

* FY 1992 accomplishments 
Examples of FY 1992 accomplishments 



* 



Contents of Tah 

Tab D Creation of New NeighborWorks* Organizations 

Tab E Organizational Expansion 

Tab P Preserving Affordable Housing 

Tab G Program Review 

Tab H Training and Informing; 

* Formal Training Institutes and Field Workshops 

* Model Strategy Development and Replication 

* Research and Information Services 

* Information Dissemination 
Tab I Secondary Market Activities 
Tab J Administration 



39 



280 



March 25, 1993 



CKB&TZOH or VZW MEIOHBORWOKXS* OBGAHZaATIOHS 



Appropriated ($000s) 
Non-appropriated ($000s) 

Total Expenses ($000s) 

Total Sources ($000s) 
Percent of All Sources 



FY 92 

$3,554 
2£2 



FY 93 

JUST. 
BUDGET 

$3,619 
225 



FY 93 

EST. 

$3,137 
221 



FY 94 
JOST. 

$2,840 
221 



CHANGE 
FY 93 EST.\ 
FY 94 JUST. 



$(297) 
2_ 



9% 
0« 



$3,816 $3,844 $3,362 $3,065 $(297) - 9% 

$33,191 $29,750 $30,135 $29,361 
lit 13% 11% 10% 



FY 1994 Goals - Creation of New NeighborWorks* Organizations 

The demand for Neighborhood Reinvestment to undert20ce new 
developments and affiliations is greater than ever. Though current 
public-sector initiatives, such as HOME, set aside funds for non- 
profits to create affordable housing opportunities, many 
communities do not have eligible, effective, non-profit 
organizations. Where non-profit organizations do exist, there is 
limited access to the kind of training and technical support 
Neighborhood Reinvestment provides to its network. We currently 
have requests from nearly 50 communities for assistance to develop 
a new NeighborWorks* organization and an equal number of requests 
from existing non-profit organizations to join our network. Our 
resources permit us to assess approximately one fourth of these 
applications and proceed with developmental activities in 5 percent 
of the cases. 

In FY 1994, Neighborhood Reinvestment plans to initiate development 
of two new NeighborWorks* organizations and to enter into 
affiliation agreements with three existing non-profit 
organizations. The current expectation is that all additions will 
be organizations that provide services more similar to Neighborhood 
Housing Services, rather than Mutual Housing Associations. 
However, if financial resources and real-estate opportunities to 
develop Mutual Housing Associations were present, we would consider 
the creation of new Mutual Housing Associations in one or two 
sites. If this should occur, a proportionate reduction in NHS 
developments would result. Neighborhood Reinvestment anticipates 
^hat smaller cities and rural communities will be sites for FY 1994 
evelopments. 



40 



281 



March 25, 1993 

Suinaarv of FY 1994 B udget Request 

Neighborhood Reinvestment anticipates obligating $3,065,000 to 
Initiate the development of two new organizations in communities 
not presently served by members of the NeighborWorks* network, to 
complete the developments of five or six other new organizations 
begun in prior years and to affiliate with three existing non- 
profit organizations. Within the above FY 1994 total, $225,000 in 
non-appropriated funds is expected from development contracts with 
cities, states and other entitles. 

Explanation of Increase/Decreas e - FY 1993 /FY 1994 

In FY 1994, the Corporation expects an overall 9 percent reduction 
in expenses related to the creation of new NeighborWorks* 
organizations. This is made possible by the reduction of expenses 
for prior year development starts and fewer administrative grants 
to maturing Mutual Housing Associations. 

USES OF FUNDS: 

Compensation 

Travel 

Professional Services 

Conferences/ Workshops 

Occupancy 

Other Operating Costs 

Grants 

Total Uses of Funds 

With the recent trend toward fewer developments of new 
organizations (from 11 in FY 1992, 3 in FY 1993 to 2 in FY 
1994) , creation expenses will decline. This is particularly so 
for travel and workshop expenses related to developments begun 
in prior years. However, staff expenses will remain somewhat 
constant as the Corporation works through a chartering 
approach to affiliate with three existing organizations. 
Creation grants will diminish as fewer operating grants are 
awarded to maturing Mutual Housing Associations. 



FY 1993 




FY 1994 


CHANGE 


Estimate 


Justification 


$ 


% 


$1,780,000 


$1 


,749,000 


$ ( 31,000) 


- 2% 


260,000 




208,000 


( 52,000) 


-20% 


52,000 




48,500 


( 3,500) 


- 7% 


35,000 




23,500 


( 11,500) 


-33% 


190,000 




171,000 


( 19,000) 


-10% 


195,000 




180,000 


( 15,000) 


- 8% 


850.000 




685.000 


fl65.000< 


-19% 


$3,362,000 


$3 


,065,000 


$(297,000) 


- 9% 



41 



282 



March 25, 1993 

Changes in FY 1993 Estimate from FY 1993 Justification 

FY 1993 FY 1993 CHANGE 

OSES OF FDWDS! JUSTIFICATION ESTIMATE g i 

Compensation $1,951,000 $1,780,000 $(171,000) - 9% 

Travel 269,000 260,000 ( 9,000) - 3% 

Professional Services 106,000 52,000 ( 54,000) -51% 

Conferences/Workshops 55,000 35,000 ( 20,000) -36% 

Occupancy 204,000 190,000 ( 14,000) - 7% 

Other Operating Costs 218,000 195,000 ( 23,000) -11% 

Grants 1.041.000 850.000 ri91.000> -18% 

Total $3,844,000 $3,362,000 $(482,000) -13% 



Neighborhood Reinvestment expects to obligate 13 percent less, 
$482,000, for the creation of new NeighborWorks* organizations 
in FY 1993 than in the FY 1993 justification. This overall 
decrease is primarily due to the reduction of the development 
of new organizations from eight in the FY 1993 justification 
to our current FY 1993 estimate of three, as recommended in 
the FY 1993 VA, HUD and Independent Agencies appropriations 
conference report (H.Rpt. 102-902) . The FY 1993 estimate also 
includes one affiliation of a new organization, which is a 
less expensive undertaking than development of a totally new 
organization. 

Program Description - Creation of New NeiahborWorks* Organizations 

Neighborhood Reinvestment creates new Neighborhood Housing Services 
(NHS) organizations, which manage comprehensive, coordinated 
reinvestment strategies for their neighborhoods. The Corporation 
also creates Mutual Housing Associations, which are tax-exempt, 
non-profit organizations that own and manage affordable housing for 
the benefit of lower- income households. A listing of the number of 
currently active organizations can be found in the appendix. 

Neighborhood Housing Services, Mutual Housing Associations and 
other Neighborhood Reinvestment-sponsored revitalization programs 
are developed through educational processes that create working 
partnerships of residents, local government officials and business 
representatives to establish and achieve defined neighborhood 
renewal goals. All developments require extensive Neighborhood. 
Reinvestment staff time, although some of these expenses may be 
partially paid with city, state or private-sector funds. 



42 



283 



March 25, 1993 

NHS developments are becoming nore conplex, often focusing on 
larger target areas and offering a much broader range of services 
than In past years. Mutual Housing Association developments 
require a dual focus on the development of a partnership 
organization and the development of affordable housing units. Both 
efforts require an intense emphasis on the kind of resident 
leadership development that will truly allow local residents to 
successfully manage and guide the complex affairs of these 
organizations. 

FY 1993 Goals - Creation of New NeiahborWorks* Organizations 

In FY 1993, Neighborhood Reinvestment plans to initiate the 
development of two new NHS organizations and one new Mutual Housing 
Association and to affiliate with one existing non-profit 
organization. NHS sites will include a mix of urban and rural 
locations. The assessment process for new organizations includes 
a determination as to whether the local community is likely to 
support the effort with f inemcial resources and key leadership over 
the long term. The assessment of applications to affiliate will 
include an evaluation of the capacity and scope of existing 
organizations. Proven, compatible, non-profit entities may be 
considered for network membership if they are positioned to address 
the needs of communities not presently well served. 

Neighborhood Reinvestment will continue to place emphasis on 
providing assistance to existing Mutual Housing Associations that 
wish to take advantage of current opportunities to increase their 
affordable housing units. A new development will be considered 
only from applicants who already have site control of 200 or more 
units. 

Neighborhood Reinvestment has limited the number of developments of 
new organizations and affiliations with existing organizations 
primarily for two reasons. The congressional directive included in 
the FY 1993 VA, HUD and Independent Agencies appropriations 
conference report (H.Rpt. 102-902) decreased our available 
resources for this program function while the time and money 
required to get a program "operationally ready" increased. 



43 



284 



March 25, 1993 

FY 1992 Accomplishments 
Creation of New NeighborWorks* Organizations 

In FY 1992, new NHS organizations were initiated in nine cities: 1) 
Fairmont, West Virginia; 2) Haverhill, Massachusetts; 3) X.ong 
Beach, California; 4) Pocatello, Idaho; 5) Ponce, Puerto Rico; 6) 
Sioux Falls, South Dakota; 7) Troy, New York; 8) Waco, Texas and 9) 
Fairbanks, Alaska. In FY 1992, new Mutual Housing Associations 
were initiated in Denver, Colorado and a state-wide effort 
headquartered in Providence, Rhode Island. 

Examples of FY 1992 Accomplishments: 

Neighborhood Housing Services 

Sioux Falls, South Dakota and Pocatello, Idaho represent 
two "second-tier" cities that were in critical need of a 
local non-profit organization to effectively implement 
public and privately funded programs in their 
communities. Each of these cities approached 
Neighborhood Reinvestment with a request for 
organizational development assistance and a commitment of 
local funds to partially cover costs. Local partnership 
development and program planning are well underway in 
both sites. 

Mutual Housing Associations 

In Providence, Rhode Island, a well-organized group of 
public housing residents approached Neighborhood 
Reinvestment with a request to help form a Mutual Housing 
Association. The cjroup, which was already incorporated 
as Family Housing, Inc. , sought technical assistance from 
Neighborhood Reinvestment and the significant benefits of 
membership in the NeighborWorks® network. Our staff 
supported these resident leaders in initiatives to 
acquire a public housing site and to establish 
credibility with local funders, including the State 
Housing Finance Agency. Neighborhood Reinvestment's 
staff have demonstrated the value of inviting 
representatives from the public and private-sectors to 
join with the Family Housing Board of Directors in a 
partnership approach. 



44 



285 



March 25, 1993 



OKOMnsATxano. Expunioa 



Appropriated ($000s) 
Non-appropriated ($000s) 



Total Expenses 



($000s) 



FY 92 


FY 93 
JUST. 
.BOOSEI- 


FY 93 
EST. 


FY 94 


FY 
FY 


CHANGE 

93 EST./ 

94 JUST. 
$ 1 


$5,614 
40 


$6,072 



$6,404 



$6,527 



$ 


123 2t 

Q 0% 


$5,653 


$6,072 


$6,404 


$6,527 


$ 


123 2* 


$33,191 
17* 


$29,750 
21* 


$30,135 
21* 


$29,361 
22* 







Total Sources ($000s) 
Percent of All Sources 

FY 1994 Goals - Organizational Expansion 

In FY 1994, 178 active Nei^hborWorKs* organizations will receive 
some level of capacity-building assistance during the year. Areas 
of enphasis include board leadership and developnent, effective 
financial management systems, increased general fundraising and 
improved access to financial resources available through Community 
Development Block Grants (CDBG) and the Federal Home Loan Bank's 
Affordable Housing Programs. More specifically. Neighborhood 
Reinvestment expects to provide assistance to 10 NeighborHorks* 
organizations wishing to geographically expand their service aoreas. 
The demand for this kind of assistance has been heightened as more 
of our NeighborHorks* organizations are being asked by local 
governments to serve as Community Housing Development Organizations 
(CHDOs) . CHDOs are often the primary service provider in the 
implementation of city-wide Cmimunity Housing Affordability 
Strategy (CHAS) plans. 

Neighborhood Reinvestment ejqwcts to also provide intensive 
technical assistance to approximately 10 other organizations to 
reorganize them (or assist in their dissolution) ; this effort is 
referred to as "substantial intervention." 

FY 1994 will be the first full year of the Corporation's formal 
membership chartering process; we expect to provide varying degrees 
of assistance to ensure that all Neiq^iborWorks* organizations that 
wish to receive a membership charter are eligible to do so. The 
long term benefit of the chartering process (and the monitoring and 
accountability that it mandates) will be to reduce the number of 
MeighborWorks* organizations that require our substantial 
intervention. 



4S 



286 



March 25, 1993 



RiiimnarY of FY 1994 Budget Request 



Approximately 22 percent of the entire resources available to the 
Corporation in FY 1994, $6,527,000 will be devoted to the expemslon 
of existing NeighborWorks* organizations. 

Explanation of Increase /Decrease - FY 1993 /FY 1994 

FY 1993 FY 1994 CHANGE 

USES OF FONDS; Est^imatg JMgtjfjgatJQn § i_ 

Compensation $2,996,000 $2,729,000 $(267,000) - 9% 

Travel 412,000 451,000 39,000 9% 

Professional Services 118,000 121,000 3,000 3% 

Conferences/Workshops 54,000 54,000 0% 

Occupancy 303,000 258,000 (45,000) - 15% 

other Operating Costs 378,000 339,000 (39,000) - 10% 

Grants 2.143.000 2.575.000 432.000 20% 

Total $6,404,000 $6,527,000 $ 123,000 2% 



Compensation, occupancy and other operating costs associated 
with this progrcun function will decrease in FY 1994 due to a 
planned reduction in costs initiated in FY 1993. Several 
positions that had focused on capacity-building assistance, 
such as commercial and economic development and other more 
general technical assistance, were eliminated due to budget 
constraints. While the Corporation regretted that financial 
restraints required this action, it believes that our staff 
has sufficient expertise to provide the most essential 
capacity-building assistance. This assistance is augmented 
cost effectively by short-term, task-specific consultants. 
Travel expenses are likely to increase as prices rise and our 
staff deliver more on-site services to stabilize vulnerable 
programs. Approximately $300,000 of the additional grants 
refer to model strategy grants shifted in FY 1994 from 
"training and informing" to this program function. 



46 



287 

March 25, 1993 

Chanaea in FY 1993 Es timate from FY 1993 Justification 

USES OF FUNDS! 

Compensation 

Travel 

Professional Services 

Conferences/Workshops 

Occupancy 

Other Operating Costs 

Grants 



FY 1993 


FY 1993 


CHANGE 




JUSTIFICATION 


ESTIMATE 
$2,996,000 


S 


t 


$2,967,000 


$ 29,000 


1% 


413,000 




412,000 


(1,000) - 


1% 


188,000 




118,000 


(70,000) 


37% 


74,000 




54,000 


(20,000) 


27% 


294,000 




303,000 


9,000 


3% 


368,000 




378,000 


10,000 


3% 


1.76?,QO0 


-i 


X43.990 


375.000 


21% 



Total $6,072,000 $6,404,000 $332,000 5% 



The budget for professional services in this program function 
has been reduced to partially offset the increase in 
professional services in the training and informing function. 
This increase is necessary to augment strategies regarding 
human resource development in community development 
organizations in keeping with congressional directives. Group 
meals and meeting rooms budgeted under the conferences and 
workshop line will be curtailed. The Corporation can increase 
capacity-building grants due to a reduction in grants 
supporting the development of new organizations and secondary 
market activities. 



47 



(;7_7Qfi M QQ 



288 



March 25, 1993 

' Proaraa Description - Organizational Expansion 

In FY 1993, Neighborhood Reinvestment adjusted its reporting 
in the third category of this programmatic functional activity 
to indicate "substantial interventions." This category 
encompasses the assistance the Corporation provides to 
programs that our internal risk analysis committee considers 
"vulnerable with critical deficiencies" and programs that are 
dissolving. 

Neighborhood Reinvestment has also changed its report language 
from "increasing capacity and developing new strategies" to 
"increasing capacity of active organizations." Therefore, the 
new count is of all active organizations not included in the 
"substantial intervention" figtire. The program function 
referred to as "organizational expansion" includes three 
labor-intensive activities: activities to increase the 
capacity of NeighborWorks* organizations (NWOs) , efforts to 
expand existing NeighborWorks* organizations into additional 
geographical areas and substantial intervention assistance to 
allow NeighborWorks* organizations to deal with serious 
difficulties. 

Increasing the Capacity of NeighborWorks* Organizations 

This category includes the bulk of the Corporation's field 
work involving: resource development for capital and 
administrative needs; financial management assistance to 
improve systems, skills and procedures; staff recruitment, 
hiring and evaluation as well as interim staffing; upgrading 
internal systems and procedures regarding lending, loan 
servicing, construction and property management; and board 
oversight development including recruitment, orientation and 
training. 

The following examples illustrate the work not only in 
specific cities cited but are also typical of the needs the 
Corporation addresses throughout the NeighborWorks* network. 
Occasionally, the need is simple and straight-forward; more 
often, varied and complex needs require attention to a number 
of facets of program operation. 

Otica. New York 

The NHS in Utica, New York, had struggled with weak 
staff and board leadership for nearly five years 
while strongly resisting outside assistance. 
Facing a serious cash flow problem in FY 1992, the 
NeighborWorks* organization requested assistance 
from Neighborhood Reinvestment to design an 
objective assessment process to measure 

48 



I 



289 



March 25, 1993 

organizational and staff effectiveness. 
Subsequently, the board of directors of the Utlca 
NHS terminated their executive director and, with 
our assistance, set about to revamp their 
organization. After a new executive director was 
hired, six new board members were recruited and 
oriented, three additional staff members were 
hired, substantial additional program funding was 
obtained and a 1992 business plan was developed. 
Productivity in the last three quarters has 
exceeded the organization's total productivity of 
the prior three years; Including 49 rehabilitations 
and $326,000 in revolving loan fund activity. 

Cumberland. Maryland 

The communities in Cumberland, Maryland, have 
recently suffered from the shutdown of two major 
employers and cutbacks In funding from city and 
state government. While the need for program 
services escalated, operating and Investment 
dollars for the Cumberland NHS, while highly 
respected, became more scarce. With assistance 
requested from Neighborhood Reinvestment, the 
Cvimberland NHS began a strategic planning process 
whereby they determined that a lender pool would 
provide much-needed resources to the neighborhoods 
while generating some operating funds for the NHS. 
A $50,000 Neighborhood Reinvestment grant leveraged 
the first $250,000 from local investors from the 
loan pool; the first loans are expected to be 
closed in May of 1993. 

New York Citv. New York 

In FY 1992, Neighborhood Reinvestment provided a 
$88,363 capacity-building grant to the NHS of New 
York City to upgrade financial management systems 
and to hire a staff member who could develop 
additional financial resources, recruit volunteers 
and oversee their work. Through this initiative, 
the Neighborhood Housing Services attracted an 
annual funding commitment from the New York State 
Neighborhood Preservation program of up to $62,500 
in operating funds each year for five years for two 
of the NHS' neighborhoods. This new staff member 
also assisted with the NHS' 10-year celebration, 
which ultimately generated nearly $200,000 in 
additional contributions. In 1992, the NHS 
directly lent $4.1 million by closing 226 loans 
targeted to the rehabilitation of residential 
units. 

49 



290 



March 25, 1993 



substantial Interventions 

Like all community-based orgemlzatlons, NeighborHorks* 
organizations are subject to various serious difficulties, 
such as financial upheavals, loss of key program leadership, 
inability to meet production goals, poor staffing choices and 
internal dissension. Opon the recommendation of Neighborhood 
Reinvestment's program review staff or district director, a 
NeighborWorks* organization In critical difficulty will 
receive help in diagnosing the problems that are creating 
vulnerability or leading to crisis and to develop a corrective 
action plan to address them. 

Neighborhood Reinvestment commits appropriate staff and 
financial resources to implement the corrective action plan 
tailored to each situation. In some Instances, an interim 
executive director may be provided; in others, a major 
organizational restructuring may be undertaken. Some 
circumstances may veurrant assistance in an orderly dissolution 
of the organization. 

Colorado Rural Housing Develop ment Corporation Tttia 
20-year-old orgemizatlon, which had a history of 
high productivity and Investor support serving a 
rural and under-served part of the state, joined 
our network several yeiurs ago. In FY 1992, a 
combination of internal conflict and environmental 
restraints threatened the aOjility of the 
organization to continue. With a $30,000 grant and 
extensive on-site assistance from Neighborhood 
Reinvestment, CRHDC emerged as a much stronger 
organization and has Increased its capacity to 
negotiate internal conflicts that might arise in 
the future. With fiscal solvency regained, the 
CRHDC intends to take on an affordable housing 
Initiative with a 20-unlt property now owned by the 
Resolution Trust Corporation. 

Bridgeport. Connecticut 

Two years ago, the City of Bridgeport declared 
bankruptcy. Despite a court decision rescinding this 
action, the City remains essentially bankrupt. The NHS 
of Bridgeport, once one of the premiere members of our 
network, has suffered a drastic reduction in resources, 
loss of key staff and dwindling production (like all 
private and non-profit organizations in the city) . At 
the request of the NHS, Neighborhood Reinvestment staff 
has designed and is helping to Implement an assessment of 
their options for the future. Past, present and future 

50 



1 



291 



March 25, 1993 

partners and supporters will be surveyed with an eye 
toward a possible merger with another capable, though 
financially struggling, non-profit organization. 

Geographic Expansion of NelahborWorks* Organizations 

Geographic expansion requires the existing organization to 
redefine its mission and goals to meet the needs of a new 
service area. Increasingly, expansion efforts focus on 
providing a service to a number of new neighborhoods, to a 
city as a whole or, in rural areas, to an entirely new 
community. Neighborhood Reinvestment provides assistance in 
assessing needs and resources, recruiting new partners, fund 
raising, developing resident leadership and restructuring the 
organization. The Corporation also orients the new board of 
directors and works with them to develop effective strategies. 

Fort Wavne. Indiana 

The Ft. Wayne , NelghborWorks* organizations, known as 
Project Renew, is a stable organization that asked for 
Neighborhood Reinvestment expertise to design geographic 
expansion strategies, define roles and responsibilities, 
develop job descriptions and form a committee structure 
to manage an expansion effort. Later, Project Renew 
collaborated with the local Urban Enterprise Association 
in an expansion that encompasses the residential areas in 
the Ft. Wayne Enterprise Zone. The Lilly Foundation 
supported this initiative with a $700,000 grant, enabling 
the organization to more than triple its service area. 

FY 1993 Goals - Organizational Expansion 

In FY 1993, Neighborhood Reinvestment expects to provide 
assistance to 10 NeighborWorks* organizations to 
geographically expand their service areas. The Corporation 
also expects to provide intensive technical assistance in 
approximately 15 cities, an activity described as "substantial 
interventions." It is anticipated that nearly all of the 
other active 172 NeighborWorks* organizations will receive 
some assistance in expanding their resources or their Internal 
systems capacity in FY 1993. 

FY 1992 Accomplishments - Organizational Expansion 

In FY 1992 , Neighborhood Reinvestment assisted 15 
NeighborWorks* organizations to expand their service areas. 
Substantial Interventions were undertaken In 17 cities. 
Neighborhood Reinvestment provided capacity-building 
assistance to 167 other NeighborWorks* organizations. 



51 



292 



March 25, 1993 



PBBSEBVIVa AFrORD&BLE HOU8IHO 



Core Appropriation ($000s) 
Appropriated Equity Capital 
Non-appropriated ($000s) 



Total Expenses 



($000S) 



Total Sources ($000s) 
Percent of All Sources 



FY 92 


FY 93 
JUST. 
POPQET 


FY 93 
EST. 


FY 94 
JUST. 


CHANGE 
FY 93 EST.\ 
FY 94 JUST. 
$ % 


$3,894 

4,213 

9 


$4,521 

<? 


$4,246 

786 




$5,281 

9 


$1,035 24% 

(786) -100% 

0% 


$8,107 


$4,521 


$5,032 


$5,281 


$ 249 5% 


$33,191 
25% 


$29,750 
15% 


$30,135 
17% 


$29,361 
19% 





FY 1994 Goals - Preservin g Affordable Housing 



A. Revolving loiui investment ($000s) 

B. Other direct investment ($000s) 

C. Total housing production 



FY 1992 
ACTUAL 

$ 26,334 

$ 171,805 

6,567 



FY 1993 FY 1994 
ESTIMATE GOALS 



$ 27,000 

$ 175,000 

7,200 



D. Housing services by selected function: 

1. New homeownership units 1,382 

2 . Mutual housing units (by year) 670 

3 . Mutual housing units 

(cumulative) 1,868 



1,100 
900 

2,768 



$ 28,000 

$ 180, OOC 

8,000 



1,500 
1,000 

3,768 



In FY 1994, Neighborhood Reinvestment will increase its activities 
to promote homeownership as part of a national initiative designed 
to enhance the capital and technical resources available to our 
network. It is anticipated that these efforts will result in 8,000 
to 10,000 new home owners over the next five yeairs. 

In FY 1994, Neighborhood Reinvestment will have committed all of $5 
million for equity capital made available in the FY 1992 
appropriation. The projects, projected investment amd units, are 
listed at the end of this section. Selected highlights of the 
projects can be found under Tab R in the appendix. 



52 



J 



293 



March 25, 1993 



S^imtry of FV 1994 Budget Recmest 



The Corporation projects that $5,281,000 will be obligated in FY 
1994 to further activities that preserve affordable housing for 
lower-income and moderate- Income households. This is 19 percent of 
the total available resources. 





FY 1993 


FY 1994 


CHANGE 




USES OF FUNDS: 


Estiaatg 


JMStifiMti<?n 


s 


\ 


Compensation 


$1,613,000 


$1,556,000 


$( 57,000) 


- 4% 


Travel 


288,000 


319,000 


31,000 


11% 


Professional Services 


147,000 


158,000 


11,000 


7% 


Conferences /Workshops 


26,000 


27,000 


1,000 


4% 


Occupancy 


220,000 


228,000 


8,000 


4% 


Other Operating Costs 


285,000 


293,000 


8,000 


3% 


Affordable Housing Grants 


1.557.099 


2.709.099 


1.033.000 


62% 


Sub-Total 


$4,246,000 


$5,281,000 


$1,035,000 


24% 


Equity Capital Grants 


795.009 





(786.0001 


-100% 


Total Uses of Funds 


$5,032,000 


$5,281,000 


$249,000 


5% 



In FY 1994, expenses related to preserving affordable housing 
are expected to Increase 5 percent over the FY 1993 level as 
a result of Neighborhood Reinvestment's intense efforts to 
identify, evaluate and assist in the production of housing 
units affordable to lower-income and moderate-income 
households and as a result of a shift in grant 
classifications . 

Grants in this program function are greater than in FY 1993 
primarily due to the elimination of the classification knotm 
as "secondary market access" grants (in the "secondary market 
activities" program function) and the shift of those funds to 
this category. In FY 1994, $938,000 previously budgeted under 
the title "secondary market access grants" will be included in 
this category because the purpose of these grants are 
essentially the same as preserving affordable housing grants, 
namely, to assist NelghborWorks* organizations in their 
efforts to promote affordable housing opportunities for lower- 
income and moderate-income households. The grant 
classifications differed only to the extent of the expected 
involvement with the secondary market administered by the 
Neighborhood Housing Services of America (NHSA) . This 

53 



294 



March 25, 1993 

distinction proved ciabersone because it was often too early 
to determine the exact nature of NHSA's expected involvement 
at the time grants were budgeted and obligated. 

Compensation expenses in this program function will decrease 
in FY 1994 due to the elimination in the latter part of FY 
1993 of two positions solely dedicated to multifeunily 
financing. While the Corporation regretted that financial 
restraints required this action, it believes that our staff 
has sufficient expertise to provide the most-essential 
capacity-building assisteoice. The services provided by staff 
are augmented cost effectively by short-term, task-specific 
consultants . 



Changes in FY 1993 Estimate from FY 1993 Justification 





FY 1993 


FY 1993 


CHANGE 




USES OF FUNDS: 


jySTiriCATION 
$1,718,000 


ESTIMATE 
$1,613,000 


S 


% 


Compensation 


$(105,000) 


- 6% 


Travel 


353,000 


288,000 


(65,000) 


-18% 


Professional Services 


191,000 


147,000 


(44,000) 


-23% 


Conferences/Workshops 


41,000 


26,000 


(15,000) 


-37% 


Occupancy 


234,000 


220,000 


(14,000) 


-6% 


Other Operating Costs 


317,000 


285,000 


(32,000) 


-10% 


Affordable Housing Grants 


1.667.000 


X,«67.000 


P 


0% 


Sub-Total 


$4,521,000 


$4,246,000 


$(275,000) 


-6% 


Equity Capital Gremt 





79$. 990 


79$. 009 


NA 


Total Uses of Funds 


$4,521,000 


$5,032,000 


$ 511,000 


11% 



The most significant change from the justification is 
$786,000, the remainder of the $5 million appropriation for 
lending and equity capital gr2utts authorized in FY 1992. 
Other reductions stem from the elimination of two positions 
solely devoted to multifamily financing in the second quarter 
of FY 1993. A portion of the budget for professional services 
was shifted from this program function to cover the initiative 
regarding human resource development in the community 
development industry recommended by the VA, HUD and 
Independent Agencies Appropriations Committee in the FY 1993 
conference report, H. I^t. 102-902. 



S4 



295 



March 25, 1993 

Program Description - Preserving Affordable Housing 

Measured output of the "preserving affordable housing" program 
function includes: 

A. Revolving Loan Fund Investment 

Dollar amount of investment made by NeighborWorks* 
organizations from their revolving loan funds. This 
includes loans closed plus the equity investment in real 
estate made by local programs. 

B. Other Direct Investment 

Dollar volume of loans, equity and capital improvements 
directly invested as a result of the efforts of 
NeighborWorks* organizations. (This figure does not 
include the investments counted under revolving loan fund 
investments . ) 

C. Total Housing Uni t Production 

This number includes rehabilitated units, newly 
constructed units, units sold "as is" and units that have 
gone to settlement with technical assistance provided by 
NeighborWorks* organizations. 

Neighborhood Reinvestment seeks to preserve affordable housing 
for lower-income and moderate-income families through 
approaches involving three different types of ownership, 
homeownership strategies, mutual housing and rental housing. 
The results of these strategies are measured in terms of the 
output of the NeighborWorks® network and reported in the 
"activities and output measures" table, located under Tab 4, 

Homeownership Strategies 

The percent of residential home owners has long been a key 
indicator of neighborhood stability; therefore, increasing the 
numlser of home owners in their neighborhoods has long been a 
primary focus of NeighborWorks* organizations. To accomplish this, 
strategies have involved home improvement loans to lower-income 
home owners, conversion of tenants to home owners and neighborhood 
marketing efforts to expand the number of home owners. This work 
is especially geared to stabilize neighborhoods and to assist 
potential first-time home buyers. 

Mutual Housi ng Association 

A Mutual Housing Association (MHA) is a private, non-profit, 
501(c)(3) partnership organization established to develop, own and 
manage affordable housing in the community's interest. Membership 

55 



296 



March 25, 1993 

Is comprised of MHA residents and potential residents, 
representatives of municipal and state government, and leaders from 
business and the broader community. The MHA Is governed by a board 
of directors representative of the membership. Each board member 
has one vote; residents and resident Interests constitute a 
majority on the board. 

Beyond developing housing, the MHA's mission Is to build a strong 
and stable community through the empowerment of Its residents. 
Mutual Housing Associations are committed to being ongoing 
producers of affordable housing to meet the current and futiure 
housing needs of the communities they serve. 

Rental Hwgjng 

These strategies involve the development, financing, construction, 
rehabilitation, management and maintenance of structures with five 
or more units. 

FY 1993 Goals - Preservin g Affordable Housing 

In FY 1993, the Corporation ztnticipates that the NeighborWorks* 
network will use $27 million from its revolving loan and capital 
project funds to close loans euid invest in affordable housing. The 
network will be a catalyst for the direct Investment of an 
additional $175 million into NeighborWorks* communities. Total 
housing production is estimated at 7,200 units including 1,100 new 
home owners and 900 mutual housing units. Assistance to applicants 
for HOME and HOPE grants will continue. In FY 1993, the 
Corporation will also fully commit the $786,000 that remains of the 
additional $5 million appropriation for lending and equity capital 
grants, though the actual disbursement of these funds will continue 
into FY 1994. 

Examples of FY 1992 Accomplishments 
Preserving Affordable Housing 

Ose of HO ME and HOPE Funds 

In FY 1992, Neighborhood Reinvestment provided technical assistance 
to numerous organizations seeking HOME and HOPE funding. As of 
mid-January of 1993, approximately $18.7 million in HOME funds have 
been committed to NeighborWorks* organizations to create or improve 
over 1,800 units. In addition, $14.3 million in HOPE funds have 
been committed. Involving nearly 1,500 units. A survey of HOME and 
HOPE opportunities can be found in the appendix under tab S. 



S< 



297 



March 25, 1993 

Increasing Homeovmershlp: Dlnunl t County. Texas 

This rural NeighborWorks* organization, headquartered in Carrizo 
Springs, Texas, has made homeownership their primary mission. In 
FY 1992, Neighborhood Reinvestment provided a $20,000 expendable 
grant to support staff costs associated with marketing and client 
intake and $150,000 in equity capital. These two grants leveraged 
an Affordable Housing Grant from the Federal Home Loan Bank for a 
$1.2 million project that will construct a minimum of 35 homes for 
families with incomes at or below 50 percent of the median. The 
County has agreed to provide $280,000 to the program and the 
Meadows Foundation has provided $200,000. These new resources will 
support a lease/purchase program that will construct an additional 
20 new homes per year. 

Mutual Housing Associations 

In FY 1992, HOPE II planning grants were awarded to the 
NeighborWorks* network in support of the development of 1,300 
units; HOPE II implementation grants have been provisionally 
approved for an additional 505 mutual housing units. 

Denver Mutual Housing A ssociation 

This Mutual Housing Association, which incorporated in FY 1992, has 
aggressively pursued HOPE II funding to allow the Association to 
acquire publicly held properties. Neighborhood Reinvestment 
committed intensive staff support to help the Mutual garner a 
Federal Home Loan Bank Affordable Housing Program Award of $370,000 
and three HOPE II grants. A HOPE II planning grant in the amount 
of $504,000 for 630 units has been awarded as well as a $2.5 
million HOPE II implementation grant for 152 units. 

Rental Housing; Hudson Housing Services 

The NeighborWorks* organization in Hudson, New York, recognized the 
critical need for transitional housing for homeless families. In 
response to their application. Neighborhood Reinvestment awarded a 
$20,000 grant to establish a reserve fund for development of a 
four-unit building for this purpose. The total cost of the 
project, including land, construction, furnishings and reserves, 
was $322,500. The NeighborWorks* organization has also worked with 
the Columbia County Department of Social Services to provide 
employment counseling and family counseling to residents of the 
building residents which is currently fully occupied. 



57 



298 



March 25, 1993 

Rental Hoiisirw: Carolina. Puerto Rico 

A $190,000 equity capital grant froa Neighborhood Reinvestsent 
provided essential gap financing for the purchase and rehab of a 
SI. 8 aillion project providing 34 units designed to remain 
affordable for lower-income tenants. The Corporation also provided 
critical technical assistance to align the financing through 
private loams, Urban Development Action Grants (UDAG) , HOME, city 
funds and Neighborhood Housing Services of America. 

Ecmitv Capital Grants 

In FY 1992, Congress appropriated $5 million to Neighborhood 
Reinvestment for equity and capital grants to NeighborWorks* 
organizations. Dnder the terms of the appropriation language, 
these resources are being provided to Neighborhood Reinvestment in 
quarterly allotments. 

Upon announcing the availability of these funds in FY 1992, 
Neighborho-od Reinvestment received a total of $11 million in sound 
funding requests from NeighborWorks* organizations. Through 
evaluation and strategic decision maJcing, the grants listed on the 
following pages were obligated. All told, the $5 million will 
leverage investments of $143 million, resulting in over 2,600 units 
of affordable housing for lower- income households. 



58 



299 



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302 



March 25, 1993 



FS06RAM REVIEW 



Core Appropriation ($000s) 
Non-appropriated ($000s) 



FY 92 
ACTUAL 

$1,495 
fi 









CHANGE 


FY 93 






FY 93 EST.\ 


JUST. 


FY 93 


FY 94 


FY 94 JUST. 


BUDGET 


EST. 


JUST. 


$ % 



$1,421 

a 



$1,460 
Q 



$1,530 
fl 



$ 70 




Total Expenses 



($000S) $1,495 $1,421 $1,460 $1,530 $ 70 



Total Sources ($000s) $33,191 
Percent of All Sources St 



$29,750 
5% 



$30,135 $29,361 
5% 5% 



FY 1994 Goals - Program Review 



FY 1994 will be the first full year of program reviews 
conducted under em improved process designed to produce more 
comprehensive reviews. This improved monitoring system 
focuses on the overall programmatic and financial health of a 
NeighborWorks* organization - not just on the funds provided 
by Neighborhood Reinvestment. The Corporation estimates that 
100 progrzuD reviews will be conducted imd finalized in FY 
1994; the program review auditor will review 160 audits during 
FY 1994. 

fiiiimnai-Y Of FY 1994 Budget Request 

It is anticipated that $1,530,000 will be obligated in FY 1994 
as part of our efforts to monitor NeighborWorks* 
organizations. This is 5 percent of the total available 
resources . 

Explanation of Increase /Decrease - FY 1993/FY 1994 



5% 
0% 

5% 



USES OF FUNDS; 

Compensation i 

Travel 

Professional Services 

Conferences/Wor)cshops 

Occupancy 

Other Operating Costs 

Grants 



FY 1993 


FY 1994 


CHANGE 


Estimate 


JM?t:ifi<;?»ti<?n 


$ 


% 


1,026,000 


$1,063,000 


$37,000 


4% 


209,000 


230,000 


21,000 


10% 


71,000 


78,000 


7,000 


10% 


10,000 


10,000 





0% 


56,000 


58,000 


2,000 


4% 


88,000 


91,000 


3,000 


3% 











NA 



Total Uses of Funds $1,460,000 



$1,530,000 $70,000 



5% 



C2 



303 



March 25, 1993 

Travel costs and professional services are expected to increase in FY 1994 
due to the additional on-site days necessary under more stringent program 
review procedures. 

Changes in FY 1993 Estimate from FY 1993 Justification 



USES OF FUNDS; 

Compensation 

Travel 

Professional Services 

Conferences/Workshops 

Occupancy 

Other Operating Costs 

Grants 

Total Uses of Funds 



FY 1993 


FY 1993 


CHANGE 




JUSTIFICATION 


ESTIMATE 


$ 


% 


$ 970,000 


$ 1,026,000 


$ 56,000 


6% 


231,000 


209,000 


(22,000) ■ 


-10% 


71,000 


71,000 





0% 


10,000 


10,000 





0% 


51,000 


56,000 


5,000 


10% 


88,000 


88,000 





0% 


P 








NA 



$1,421,000 



$1,460,000 $ 39,000 



3% 



The estimate for program review expenses in the FY 1993 
justification were lower than our current projection because 
the justification included one less full-time equivalent 
employee. 

Program Description - Program Review 

Neighborhood Reinvestment has developed a pro-active process 
to monitor NeighborWorks* organizations to ensure that the 
network as a whole continues to have a reputation for 
soundness, accountability and productivity. This approach 
leads, in turn, to greater gains and more positive results for 
individual NeighborWorks* organizations. The next page 
presents a pictorial model of the corporate monitoring system. 

Our progreuB review process is an integrated monitoring system 
that relies on input from various sources throughout the 
Corporation and Neighborhood Housing Services of America 
(NHSA) . The monitoring system has been designed around an 
internal "Risk Analysis Committee." This committee, composed 
of senior managers from Neighborhood Reinvestment's Washington 
D.C. and district offices plus NHSA, evaluates, ranks and 
makes strategic recommendations for individual network 
organizations. The committee pools information from key 
sources and assigns a two-part health/risk rating to each 
organization. If an organization is vulnerable in particulzu: 
areas, the committee works with district staff to design 
intervention strategies that strengthen the progreun. These 
strategies might include intense support from district, 
financial management or training staff. 

C3 



304 



March 25, 1993 



Th« Risk Analysis Committee designates health by using a five- 
point, scale of risk under the broad headings of stable (S) , 
vulnerable (V) or dissolving (D) : 

SI: Stable, with exemplary performance 

S2: Stable, with average or above average performance 

S3: Stable, with satisfactory performance, though 

minimal improvement is needed in some areas 
V4: Vulnerable, performance is below expectations; 

corrective action required 
V5: Vulnerable, with critical performance deficiencies 
D: Dissolved or in the process of dissolving 

The charts and graphs on the following pages reflect the 
activities of the Risk Analysis Committee from the baseline 
meeting in June of 1991 through February, 1993. They show 
gradual, systematic improvement in the overall health of the 
network . 



64 



305 



ELEMENTS OF 

PROGRAM MONHDRING 

SYSTEM 



Nd^iborWorks 
Orgaiiizati(HK 




65 



306 



SUMMARY OF CORPORATE RANKINGS 

Risk Analysis Committee 
Baseline June 1991 



RANKINGS KEY: 

51 = Stable; exemplaty performance 

52 s Stable; average/above average performance. 

53 s Stable; satisfactory, minimal improvements needed 
V4 s Vulnerable; below expectations 

V5 s Vulnerable; critical deBciencies 
D = Dissolving 



S3 
31% 




D 

4% 



.Mtlnga for 156 N»lghborWorla Organizations 

Not all NWOa iwr* rankad. /.*., thoaa vrith laaa than six months operating axparianea. 
March 25, 1993 

66 



307 



SUMMARY OF CORPORATE RANKINGS 

Risk Analysis Committee 
Rankings as of February 11, 1993 



RANKINGS KEY: 

51 = Stable; exemplary performance 

52 = Stable; average/above average performance. 

53 = Stable; satisfactory, minimal improvements needed 
V4 = Vulnerable; below expectations 

V5 = Vulnerable; critical deficiencies 

D = Dissolving 

S2 

27% 




Ratings for 164 NelghborWorks. Organizations 
March 25, 1993 



67 



308 



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309 



March 25, 1993 

Another key element of the Corporation's monitoring system is 
the program reviews of network organizations conducted by 
program review staff who have developed standard review 
procedures, work plans and tools. Known by the acronym 
"PROMPT," these tools assess six key performance dimensions: 

Planning; 

Resource development; 
Orgemizational oversight; 

Management (including contract compliance, financial 
management and personnel administration) ; 
Production and program services; and. 
Technical operating systems 

To better perform these sophisticated reviews, our program 
review officers received Important additional training. The 
initial PROMPT baseline training was conducted by the CPA firm 
of Grant Thornton. - Program review officers and managers are 
now required to complete at least 80 hours of training per 
year designed to Improve their PROMPT review skills and 
technical abilities. See tab U in the appendix for the 
program review work plan for "financial management systems." 

Given the greater level of sophisticated financial and 
development activity many organizations have undert2Ucen, 
program reviews increasingly focus on an organization's 
financial condition, major real estate endeavors and staff 
capabilities. This focus is particularly relevant for those 
organizations with a significant amount of loans sold with 
recourse to Neighborhood Housing Services of America (NHSA) , 
which must maintain a high degree of financial security to 
continue to provide mortgage services to the NeighborWorks* 
network . 

FY 1993 Goals - Prog ram Review 

In FY 1993, Neighborhood Reinvestment will conduct 100 program 
reviews of NeighborWorks* organizations. It is also 
anticipated that the Corporation's program review auditor will 
review 140 audits during the 1993 fiscal year. Refining the 
PROMPT system, testing the documents and further refining the 
audit process will continue in FY 1993. Throughout the year, 
program review staff will attend Intense training seminars to 
increase their ability to perform more rigorous reviews. 



C9 



310 



March 25, 1993 



FY 1992 Accomplishments - Program Review 

There were 116 program reviews finalized and 147 audits 
reviewed in FY 1992. During this year, the PROMPT system was 
developed. The program review staff was instrumental in 
developing the analysis model and base line ratings for the 
risk analysis committee, as well as the corrective action 
procedures. Each audit received from a NeighborWorks* 
organization was reviewed and the process for communication of 
findings and recommendations for follow-up actions was 
defined. 

FY 1992 Examples of Accomplishments . 

Hew YorH Citv. New York 

The NHS of New York City, one of the largest 
organizations in the NeighborWorks® network, serves 
six large neighborhoods and provides additional 
city-wide special loan services. Though the NHS 
has earned a solid reputation with an impressive 
track record, their board of directors and 
executive director have consistently used the 
Neighborhood Reinvestment program review as a basis 
for a complex self-evaluation and planning process. 

Last year, the program review provided an extensive 
assessment of each of the seven components of the 
NHS through on-site visits and interviews with all 
39 staff and 50 to 60 members of the volunteer 
boards and committees to improve communications and 
enhance performance. The recent review also 
Indicated a need to better coordinate loan services 
and to develop a computer system that will network 
with each of the separate office sites. Based on 
the review, the executive director upgraded the 
loan procedures by receiving a grant from a 
financial institution to purchase a more powerful 
computer . 

Corvallis. Oregon 

The NHS of Corvallis provides affordable housing 
primarily through real estate development, 
ownership and management rather than the 
traditional NHS rehab loan approach to home owners. 
Though the NHS had made substantial progress toward 
establishing internal systems for its activities, 
there was some uncertainty about their capacity to 
maintain that success. Therefore, the program 
review team focused on the real estate development 

70 



311 



March 25, 1993 



and property management skills needed to pursue 
their chosen approach. As a result, the board of 
directors later recruited additional development 
expertise on its financial oversight committee, 
corrected several key assumptions underlying 
development project pro formas and contracted for 
professional property management services until the 
size and experience of its staff increased. 



71 



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March 25, 1993 



TRAIHZHO AHD IMTORXIMO 



Core Appropriation ($000s) 
Non-appropriated ($000s) 



FY 92 

$5,149 
285 



FY 93 

JUST. 

BSSiSEL. 

$5,109 
265 



FY 93 

EST, 

$5,369 
2$5 



FY 94 
JUST. 



CHANGE 
FY 93 EST.\ 
FY 94 JUST. 

S » 



$4,949 ($420) 
265 Q 



Total Expenses 



($0008) $5,433 



Total Sources ($000s) $33,191 
Percent of All Sources 16% 



$29,750 
18« 



$30,135 $29,361 
19% 18% 



This program function includes four main activity areas: 
training, model strategy development and replication, research 
and Information services, and information dissemination. 

gVUnniarY "J f FY 1994 Budget Request 

We anticipate the obligation of $5,214,000 in FY 1994 related 
to our efforts to provide training and information. Of this 
total, $265,000 is projected from training registration fees 
to b« paid by participants at formal training events. The 
estimated percentage of total revenue to be spent in this 
program function in FY 1993 is 18 percent. 

Explanation of Increase /Decrease - FY 1993 /FY 1994 



USES OF FUNDS! 

Compensation 

Travel 

Professional Services 

Conferences/Workshops 

Occupancy 

Other Operating Costs 

Grants 

Total Uses of Funds 



-8% 
0% 



$5,374 $5,634 $5,214 ($420) -7% 



FY 1993 




FY 1994 


CHANGE 




Justification 


s * 


$2,362,000 


$2 


,446,000 


$ 84,000 4% 


310,000 




325,000 


15,000 5% 


779,000 




505,000 


(274,000) -35% 


230,000 




238,000 


8,000 3% 


391,000 




410,000 


19,000 5% 


646,000 




670,000 


24,000 4% 


916.000 




620.000 


r296.0001 -32% 


$5,634,000 


$5 


,214,000 


$(420,000) - 7% 



The FY 1994 justification figures do not continue a $250,000 commitment in FY 
1993 to fund a comprehensive human resource strategy for the field of 
community-based development. Also, funds once earmarked for model strategy 
grants have been shifted to general capacity-building. 



72 



313 



March 25, 1993 



Changes in FY 1993 Estimate from FY 1993 Justif ication 



USES OF FUNDS; 

Compensation 

Travel 

Professional Services 

Conferences /Workshops 

Occupancy 

Other Operating Costs 

Grants 

Total Uses of Funds 



FY 1993 


FY 1993 


CHANGE 




JV5TIFICATI0N 


ESTIMATE 


s 


1 


$2,240,000 


$2,362,000 


$ 122,000 


5% 


310,000 


310,000 





0% 


650,000 


779,000 


129,000 


20% 


225,000 


230,000 


5,000 


2% 


387,000 


391,000 


4,000 


1% 


646,000 


646,000 





0% 


91?. 099 


916.000 





0% 



$5,374,000 



$5,634,000 $ 260,000 5% 



As directed in the FY 1993 Veterans' Affairs, Housing and Urban 
Development and Independent Agencies conference report, the FY 1993 
estimate includes funds to assist in the development of human 
resource strategies for non-profits involved in community 
development. A 5 percent increase in this programmatic function is 
projected due to reduced savings from fewer vacant positions and 
Increases in professional services costs. Contract trainers will 
help provide 6,000 (20 percent) more training contact hours and 
will update technical guides for lending, financial management and 
construction. 

Program Description - Training Institutes and Field Worlcshops 

This work is measured in training contact hours, the cumulative 
hours spent by individuals at training courses conducted by 
consultants and staff. Topics include affordable housing 
development, lending, construction management and other aspects of 
organizational management. Training institutes are also designed 
to provide formal training for new executive directors of 
NeighborWorks* organizations, emphasizing neighborhood strategy 
development, resident leadership development, organizational 
business planning, management and contract compliance. 
Participants from our network and other community-based groups pay 
registration fees to attend an institute. A training institute 
agenda can be found in the appendix under tab V. 

As currently designed, there is space in our training institute 
courses for more than 50 percent participation from other community 
development organizations. Several national and regional 
organizations are encouraging their membership to take advantage of 
Neighborhood Reinvestment's training institutes. These include the 
National Council of La Raza, the National Association of Housing 
and Redevelopment Officials, the Housing Assistance Council, the 
Enterprise Foundation, the Rural Community Assistance Corporation, 



73 



314 



March 25, 1993 

the Minnesota Housing Partnership, the Southern California 
Association of Nonprofit Housing, the Metropolitan Atlanta 
Conuaunity Foundation and the Martin Luther King, Jr. Center for 
Nonviolent Social Change. 

Because of resource limitations, we are able to accommodate only 66 
percent of the requests for registrations from NelghborWorks* 
organizations (for which we usually pay travel expenses) . 
Representatives of other non-profits not affiliated with 
Neighborhood Reinvestment (for which we do not pay expenses) tell 
us that they would like to come but cannot afford to travel to 
attend our institutes. 

FY 1994 Qo ala - Training 

In FY 1994, Neighborhood Reinvestment intends to provide high- 
quality, practical training for immediate application by the staff 
and board members of NeighborWorks* organizations and other 
community-based organizations. The Corporation intends to provide 
36,000 contact hours of training to 1,780 participants. 

Three training institutes will provide intensive 
training in the rehabilitation, development, 
management and preservation of affordable housing; 
neighborhood commercial and economic development; 
non-profit management; and financial management 
systems. The Corporation projects that a total of 
1,200 participants will receive 28,500 contact 
hours at three institutes. The institutes will be 
held in San Francisco in November of 1993, Atlanta 
in February of 1994 and in Chicago in July of 1994. 
This projection includes contact hours for the non- 
profit housing management training conducted 
jointly with the Enterprise Foundation and the 
Institute for Real Estate Management (IREM)* of the 
National Association of Realtors. 

One training workshop for neighborhood-resident 
board members. 

The Corporation projects 3,000 contact hours will 
be provided to 300 participants at this training 
scheduled to be held in San Antonio, Texas in May 
of 1994. The case study approach, successfully 
presented in 1991 and 1992 will be further 
developed. 



74 



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March 25, 1993 

Two executive director training events for new and 
proapective NeighborWorks* executive directors will 
focus on neighborhood strategy development and 
operations management. Prospective directors are 
Other current NeighborWorks* staff who may attend 
the training, when space is available, as part of 
their career development plans. A projected total 
of 1,000 contact hours will be provided to 30 
participants. One event is to be conducted in San 
Francisco; the other in Chicago. 

Qufi training gygnt £sr gxp?rigngg<a executive 

directors will provide more advanced training in 
current critical issues in non-profit management 
(such as production planning, evaluation and 
managing for qpjality and results) . The Corporation 
estimates that 1,500 contact hours will be provided 
to 100 participants at this event to be held in 
September, 1994. 

Two regional training institutes co-sponsored by 
the Rural Community Assistance Corporation are 
planned for FY 1994, building on the experience of 
regional trainings sponsored in FY 1993. Contact 
hours are estimated to be 2,000 for 150 
participants. 

Several, smaller workshops for participants from 
NeighborWorks* organizations to be conducted by 
field staff are also likely to occur in FY 1994. 

FT 1993 Goals - Training 

In FY 1993, Neighborhood Reinvestment intends to continue to 
expand its training efforts to more non-affiliated community 
development organizations, without significantly increasing 
expenses. All participants pay training registration fees 
that enable the Corporation to reach a wider audience and to 
offer more training options. Our FY 1993 goal is to provide 
36,000 contact hours of training to 1,768 participants through 
the following vehicles: 

Three training institutes will provide intensive 
skills training in rehabilitation, development, 
management, and preservation of affordable housing; 
neighborhood commercial and economic development; 
and non-profit management to staff and boards of 
NeighborWorks* organizations and other community 
development organizations. Training institutes 

75 



316 



March 25, 1993 

were held in October of 1992 in Los Angeles, 
California and in Atlanta, Georgia in February of 
1993. Another is planned for May of 1993 in 
Minneapolis, Minnesota. The Corporation antici- 
pates that 1,100 participants will receive 27,000 
training contact hours in these settings. It is 
estimated that 600 participants will attend from 
NeighborWorks* organizations, 400 from other 
community-based non-profits and 100 staff from NHSA 
and Neighborhood Reinvestment. 

In addition to traditional classroom lectures and 
discussion groups, many training institute courses 
include hands-on experience. For example, in the 
course on neighborhood revitalization strategies, 
participants survey neighborhood conditions and 
interview residents before developing strategies 
using methods learned in the course. In the course 
on affordable housing development, participants 
walk urban blocks and prepare a feasibility 
estimate for a rehabilitation project. 

The institute also provides courses leading to 
certification. Every FY 1993 institute will 
include the five-day training course, "Housing 
Management Training for Non-Profits" developed and 
conducted in conjunction with the Institute for 
Real Estate Management (IREM)* of the National 
Association of Realtors and the Enterprise 
Foundation. At the end of the course, IREM® 
conducts an exam for "resident-manager 
certification." A portion of the cost is funded by 
the Fannie Mae Foundation. 

A partnership training workshop for board members 
of NeighborWorks® organizations will be held in 
July of 1993 in Baltimore, Maryland. This training 
provides technical and operational skills to 
approximately 400 network board members. This 
training will provide 4,900 contact hours through a 
curriculum that blends formal classroom training 
with hands-on experience in a Baltimore-based case 
study . 

A training course for new and prospective 
NeighborWorks® executive directors will be held in 
May of 1993 in Minneapolis, Minnesota, concurrent 
with the training institute. This format will 
maintain the focus of earlier events geared to the 
needs of executive directors while accessing the 

76 



317 



March 25, 1993 

■kills of a wide variety of technical experts 
already teaching at the institute. The Corporation 
projects that this event will provide 600 contact 
hours to 18 NeighborWorks* participants. A copy of 
the curriculum is in the appendix. 

A training event designed fo r experienced executive 
directors from NeighborWorks® organizations 
provides a more advanced discussion of current 
critical issues in non-profit management (such as 
production planning and evaluation, managing for 
quality and results, etc.). The Corporation 
projects that 100 participants will benefit from 
1,500 training contact hours provided at this event 
to be held in September, 1993. 

Two regi onal training institutes , co-sponsored by 
the Rural Community Assistance Corporation, are 
planned: one in Portland, Oregon, in March of 1993 
and the other in Albuquerque, New Mexico in 
September. These smaller regional institutes are 
primarily designed to provide training to the staff 
and volunteers of organizations unaffiliated with 
Neighborhood Reinvestment who are unable to afford 
the travel expenses to the larger institutes. 
These regional institutes will run for two and a 
half days each and provide a total of 2,000 
training contact hours for 150 participants. 

n 1992 AccoMDlls hnents - Training 

In FY 1992, Neighborhood Reinvestment provided training to 
1,552 participants who received a total of 36,846 contact 
hours of training, surpassing our goals by 23 percent. In FY 
1992, 504 (32 percent) of those trained were from community- 
based nonprofits not affiliated with the NeighborWorks* 
network, a significant increase from FY 1991. Participants 
from NelghborWorks* organizations totaled 913 (59 percent) . 
Staff of Neighborhood Reinvestment and Neighborhood Housing 
Services of America (NHSA) who were trained totaled 135 (9 
percent) . 

Training Institutes 

Neighborhood Reinvestment conducted five-day 
training institutes in Los Angeles, California, in 
November 1991; in Baltimore, Maryland, in March 
1992; and in Chicago, Illinois, in July of 1992. 
The institute curriculum included a series of 
courses at different experience levels in each of 
the following skill areas: affordable housing 

77 



318 



March 25, 1993 

development; conununlty developnent strategies; 
finance and construction management; neighborhood 
commercial and economic development; and nonprofit 
management (Including courses In planning, resource 
development, project management and financial 
management) . 

In Los Angeles, California, 203 participants from 
NeighborWorks* organizations, 82 participants from 
other community development organizations, and 48 
Neighborhood Reinvestment and NHSA staff members 
attended training courses. In Baltimore, Maryland, 
there were 199 participants from NeighborWorks* 
organizations, 99 participants from other community 
development organizations and 35 participants from 
NHSA and Neighborhood Reinvestment. In Chicago, 
Illinois, a record 202 participants from other 
community development organizations joined 221 
NeighborWorks* and 4 3 Neighborhood Reinvestment 
staff attendees. Training contact hours for the 
three training institutes totaled 29,455, 
significantly surpassing our goal for FV 1992 of 
24,000 training contact hours through training 
institutes. Participants totaled 1,132. The 
success of outreach through our institutes to other 
community development organizations exceeded our 
expectations, particularly in the Chicago area. 

Training iai. New and Prospective Executive 

Directors 

In February 1992 and again in September 1992, 
Neighborhood Reinvestment conducted five-and-a- 
half -day training courses in San Antonio, Texas, 
for new and prospective NeighborWorks* executive 
directors. The training, based on a case study of 
San Antonio neighborhoods, teaches new executive 
directors to take a combined community empowerment 
and business planning approach to developing 
neighborhood revitalization strategies and a 
business-like approach to rehab lending, 
construction and service delivery. A total of 34 
NeighborWorks* participants and 5 Neighborhood 
Reinvestment staff benefited from 1,471 training 
contact hours. 

Training for Experienced Exec utive Directors 
In August of 1992, Neighborhood Reinvestment 
conducted a two-and-one-half-day training workshop 
in Chicago, Illinois, for 28 experienced executive 
directors and two staff. The training focused on 

78 



319 



March 25, 1993 

'tha skills and challenges of managing 
organizational growth and change, with a format 
that included instruction and peer training. Total 
contact hours were 501. 

Neighborhood-Resident Training 

In August 1992, Neighborhood Reinvestment conducted 
a special training workshop for neighborhood 
resident board members of NeighborWorks* 
organizations in Minneapolis, Minnesota. Building 
on the successful case study approach to this 
training piloted in San Antonio in FY 1991, the 
workshop was based on a case study of Minneapolis 
and Saint Paul neighborhoods. Participants studied 
one aspect of NeighborWorks* operations for eight 
hours; choices included affordable housing 
development (single family and multifamily) , 
commercial and economic development, neighborhood 
revltalization strategies, resource development, 
financial management, contract compliance and 
construction management. Then each participant 
represented that technical area in a series of mock 
board meetings where the appropriate revltalization 
strategies for each neighborhood were debated, and 
each resident board member was encouraged to take 
an active role in the discussion. The purpose of 
the training is to strengthen the voice of 
community residents on our partnership boards. A 
total of 208 NeighborWorks* network resident board 
members attended the workshop for a total of 2,496 
training contact hours. 

Training in Housing Managemen t for Non-profits 
Two five-day courses in Housing Management for Non- 
profits were developed and conducted jointly with 
the Institute for Real Estate Management IREM* of 
the National Association of Realtors and the 
Enterprise Foundation. The first was held in 
Atlanta, Georgia; the second was held in Chicago, 
Illinois, in July 1992 as part of the training 
institute. IREM* has approved the training as a 
step toward their accredited resident manager 
certification, and the Fannie Mae Foundation 
assisted Neighborhood Reinvestment, IREM* and the 
Enterprise Foundation with a portion of the 
development costs. The two courses served a total 
of 54 participants; of these, 37 were from 
community development organizations not affiliated 
with the NeighborWorks* network, 15 were from 
NeighborWorks* organizations and two were 

79 



67-798 O— 93 11 



320 



March 25, 1993 

Neighborhood Reinvestoent staff. Training contact 
hours for the two courses totaled 1,880. 

Re<^iQnal Training Events 

A training event co-sponsored by Neighborhoods USA 
(an association of ssaller, comnunity-based 
organizations that have few staff mefflbers) and the 
Anchorage NHS tras held in March 1992 in Anchorage, 
Alaslca. Participemts totaled 45; 40 of these 
represented coavunity developnent organizations 
other than NeighborWorks* organizations, five were 
froa NeighborHorlcse organizations in Anchorage and 
Fairbemlcs. Training contact hours totaled 683. 

Additional training included a special course in 
neighborhood revitalization and conaunity 
organizing for 32 staff of the City of Long Beach, 
California, and a course in public presentation 
skills for 12 staff froa Local Initiative Support 
Corporation (LISC) and the National Equity Fund in 
Chicago, Illinois. Total training contact hours 
for these courses were 360. 



321 



March 25, 1993 

Program Description 
Model Straf <TY Development and Replication 

Language in the statute that established the Neighborhood 
Reinvestment Corporation directed it "to experimentally 
replicate neighborhood preservation projects which have 
demonstrated success." This work introduces new strategies by 
identifying innovative approaches to neighborhood 
revitalization; these strategies are tested and evaluated for 
replication where appropriate. At this time, the Community 
Development Leadership Project is our focus. 

TT 1994 Goals - Model Strategy Development and Replication 

?'?'Tff"ni*"T P evelopment Leadership Project 

Neighborhood Reinvestment will continue to focus its field 
research efforts on the issue of executive director 
recruitment and retention. Launched in FY 1992, the 
Corporation's community development leadership project seeks 
to reduce executive director turnover and increase the quality 
and diversity of executives in the NeighborWorks* network and 
to provide leadership in developing a comprehensive human 
resource strategy for the field of community-based 
development. Areas of interest include: 

The "Fit" Between an Executive Director and the 
Board of Directors: 

Improving the recruitment, hiring, orientation, 
management and evaluation of executives. 

Compensation 

Making salary and benefits of executives and staff 

more competitive. 

Minoritv Recruitment 

Increasing the ability of local organizations to 
attract racially diverse, qualified candidates to 
recruitment pools for executive vacancies. 

Retention and Ca reer Building 

Understanding how to retain talented executives and 
staff by working with the broader, community-based 
development field on the issues of career paths and 
professional identity. As part of this effort. 
Neighborhood Reinvestment will collaborate with the 
Development Training Institute on a comprehensive 
report on the human resource challenges facing the 
community-based development field and offer a 
blueprint for the next five years. 



81 



322 



March 25, 1993 



FT 1993 OoalB - Modal Strategy D«v«lopB«nt and Raplioation 
CoMnaitY D«valoi»ent Laadarahio Proiaet 

As In FY 1994, in FY 1993 the Corporation will devise 
strategies to recruit and retain executive directors of 
NeighborWorksa organizations. Activities will include 
research and fact finding, experiments in enhancing services 
related to executive recruitment and retention, pilot 
projects, training and informing boards and staff and others 
working in the community-based development field. 
Specifically, the Corporation hopes to complete a long-range 
resource plan for the non-profit community development field. 
A sunmary of the survey taken to understand the needs for 
retirement planning appears in the appendix under tab H. 

As part of this comprehensive plan, the Corporation will 
develop a systematic approach to minority recruitment and 
professional development to understand and improve employee 
benefits in the community-based development field. With the 
Enterprise Foundation, the Local Initiative Support 
Corporation (LISC) , the Development Training Institute, the 
National Council of La Raza and others. Neighborhood 
Reinvestment worked on a collaborative effort, known as the 
National Benefits Consortium. Through the efforts of the 
Consortium, the National Community Development Employee 
Retirement Plan, will be implemented. The Corporation will 
also complete the pilot leadership development project in the 
Mid-Atlantic district aimed at improving retention through 
stronger and clearer fit between a board of directors and an 
executive director. 

FT 1992 Aocoapllshmants 
Modal Strategy Development an d Replication 

The following strategies have been fully incorporated into 
district operations: foreclosure intervention, youth 
intervention, home buyers clubs and employer assisted housing. 
In FY 1992, the Community Development Leadership Project 
completed its first full year of activity. Accomplishments 
included: 

* Completion, through the National Benefits Consortium, df 
the first comprehensive benefits survey for the community 
development field. 

* Development of "Managing Executive Director Transitions," 
a manual tot boards of directors on how to successfully 
meUce the tremsition and recruit for a new executive 
director. A comparison of NeighborWorks* Executive 

•2 



323 



March 25, 1993 



Director transitions in 1991 and 1992 is in the appendix 
under tab X. 

Completion of the initial three-year plan for the 
development of a system to track key indicators of change 
related to the recruitment and retention of executive 
directors. 



•3 



324 



March 25, 1993 

Prooraa Daaerlption - Res«aroh and Info rMation STvicaa 

The quarterly collection of key activity indicators from each 
NeighborWorks* organization, along with the risk assessments 
based on program reviews, form the essential informational 
data base for management to plan the Corporation's ongoing 
activities. Research activities include survey instrument 
development, data collection, statistical analyses, tabulation 
amd report vnriting. Key facts regarding the NeighborWorks* 
network's structure, services, demographics and conditions are 
collected through an annual and quarterly survey. Information 
services collects and maintains key official documents of 
network organizations such as audits, program review reports 
and 501(c) 3 rulings. The department also collects and 
disseminates other information pertinent to resource and 
community development. 

FT 1994 aoals - Resea rch and Information Services 

In FY 1994, Neighborhood Reinvestment intends to continue to 
improve the quarterly data collection system, increase the 
feedback of information to NeighborWorks* organizations and 
expemd the role of information as a management and planning 
tool for the network. The results of various housing research 
projects related to policy and community development will be 
submitted for publication and presentation at national 
conferences . 

n 1993 Goals - Research and Information Services 

In FY 1993, the Corporation will continue the annual and 
quarterly data collection survey and other activities to 
accoi^lish the following: 

* Collect and tabulate production data with heavier 
emphasis on production output and financial 
results; our goal is to release results within 75 
days of the close of the quarter. Collection, 
tabulation and dissemination of the results of the 
1992 annual survey, including reports on the staff 
of NeighborWorks* organizations, organizational 
attributes and other community services that are 
not documented in quarterly surveys. 

* Complete survey of information needs of 
NeighborWorks* organizations, implement the results 
and update the revolving loan client demographic 
data base. 



84 



325 



March 25, 1993 

* Disseminate Information on a variety of housing and 
community development Issues, Including 1990 census 
data. Resolution Trust Corporation property 
Information, ratings of financial Institutions 
subject to the Community Reinvestment Act and 
potential financial support from corporate and 
foundation sources. 

* Conduct research for the Community Leadership Development 
Project. 

n 1992 Aooomplistafflents 
Research and Information Services 

* Collected, verified and tabulated the 1991 annual survey 
data within a shorter time frame than last year. 

* Successfully collected 1992 quarterly data from more than 
96 percent of the active programs. Analyzed the 
Information needs of the Corporation and will implement 
a recommendation to provide staff with in-house access to 
the community development data bases. 

* Disseminated resource development information, including 
notice of funding availability to network progreuns from 
the Department of Housing and Urban Development (HUD) on 
the Neighborhood Development Demonstration Program 
(NDDP) , HOPE, HOME and the Housing Counseling Program. 
Seven programs received NDDP awards; 19 received HOPE 
awards; and three received housing counseling awards. 

* Managed the Community Information Exchange project, 
directed the research component of the community 
leadership development project and provided technical 
assistance to the National Benefit Consortium. 



•S 



326 



March 25, 1993 

Protyram D«acrlDtion - Information Dlasenlnation 

The Corporation creates high-quality publications, training 
materials, euid communications and marketing materials that 
support the national NeighborWorks* network and specific 
program initiatives, such as the Campaign for Homeownership, 
National NeighborWorks* Week and the Insurance Full 
Partnership effort. 

n 1994 Goals - Inf ormation Dissemination 

In FY 1994, the Corporation will refine the corporate 
communications and public relations program according to the 
following goals: 

* Support the Corporation's mission through publications, 
program initiatives and major public information 
campaigns to increase the visibility and identity of the 
national NeighborWorks* network; 

* Provide the tools that network organizations need to 
' develop effective marketing and communications progreuns; 

* Increase the awareness of the Corporation among 
businesses, foundations and other donors who provide 
resources to the network; and, 

* Educate national, state and local government officials 
about NeighborWorks* organizations' successes and needs. 

rr 1993 goals - Informat ion Dissemination 

The Corporation will continue to carry out the public 
relations program developed and initiated in FY 1992. A plan 
for each of our nine districts will be devised. This plan 
will Include assisting the NeighborWorks* organizations to 
develop stronger relationships with local government agencies 
and businesses. The national network "identity" program will 
continue. All NeighborWorks* organizations will be encouraged 
to adopt the logotype and graphics by fiscal year end. 

Neighborhood Reinvestment will continue to support the 
NeighborWorks* public service advertising campaign designed to 
capture the attention and support of the business commtinlty. 
The targeting, use emd distribution of the Corporation's 
quarterly and monthly publications will be expanded. 



86 



327 



March 25, 1993 



n 1»2 AC00BPliahm«nt» - inform ation DlaawniBatlon 

The Corporation executed its information dissemination and 
public information strategies through the following 
activities: 

* Developed a range of materials to effectively explain the 
Corporation's mission to a number of different audiences. 

* Supported training, field operations and financial 
management efforts through the design and execution of 
brochures, posters, guides and manuals (including large 
documents like "Mutual Housing Profiles" and shorter 
pieces on housing management and mutual housing) . 

* Supported the work of individual NeighborWorks* 
organizations by providing advice on marketing and public 
Information, writing about their programs in Corporate 
publications (notably the quarterly magazine Stone Soup 
and the bi-monthly tabloid Bright Ideas ^ , and by creating 
videotapes to be used for fund raising and local 
marketing. 



•7 



328 

March 25, 1993 

SBCOHDABT MABXET &CTIVITZE8 

CHANGE 
FY 93 FY 93 EST.\ 
FY 92 JUST. FY 93 FY 94 FY 94 JUST. 
tSIS&L- BUDGET EST. JVST, S_ —S- 

Core Appropriation ($000s) $3,492 $3,586 $3,745 $2,830 $(915) -24% 
Hon-appropriated ($000s) 1-065 2M 52S 52S Q_ 0* 

Total Expenses ($000s) $4,557 $4,570 $4,340 $3,425 $(915) -21% 

Total Sources ($000s) $33,191 $29,750 $30,135 $29,361 
Percent of All Sources 14% 15% 14% 12% 

FY 1994 Goals - Secondary Market Activities 

In FY 1994, Neighborhood Housing Services of America (NHSA) 
intends to purchase $10 million in loans originated by 
NeighborWor)c8« organizations. NHSA's FY 1994 projected 
purchase activity by product is as follows: rehabilitation 
loans, $3,000,000; first mortgages, $6,000,000; multifamily 
permanent, $500,000; and multifamily development bridge loans, 
$500,000. 

In addition, HHSA will be instrumental in placing $10 million 
in multifamily loans. The projected decrease in activity from 
$22 million in FY 1993 to $10 million in FY 1994 results from 
the uncertainty of continued funding of the first mortgage 
product currently offered by World Savings and the Federal 
Home Loan Bank of San Francisco through Affordable Housing 
programs. 

ffllMfllT "* ^ ^^^* B"<»°efc Request 

In FY 1994, Neigfaborfaood Reinvestment intends to obligate 
$3,425,000 to support the activities of the secondary market. 
This figure amounts to 12 percent of the total resources 
available in FY 1994. 



329 



Harch 25, 1993 



Explanation of In crease /Decrease - FY 1993/FY 1994 



OSES OF FXniDS: 


FY 1993 
ESTIMZE 

$ 50,000 

5,000 







5,000 


FY 1994 
JUSTIFICATION 

S 57,000 $ 
5,000 

500 

500 
7,000 
5,000 


CHANGE 
S t 


Compensation 

Travel 

Professional Services 

Conferences/Workshops 

Occupancy 

Other Operating Costs 


7,000 



500 

500 

7,000 




14% 
0% 
NA 
NA 

NA 
0% 


Grants: 

NHSA Administrative 

NHSA Capital 

Secondary Market Access 


2,350,000 
992,000 
938, QOO 


2,350,000 

1,000,000 







8,000 
(939,000) 


0% 

1% 
- 100% 


TOTAL 


$ 4,340,000 


S 3,425,000 


$ 


(915,000) 


- 21% 



The estimated FY 1994 budget assumes a shift of secondary market access 
grants to the function of preserving affordable housing. In FY 1994, $938,000 
(previously budgeted under the title "secondary market access grants") will 
be shifted to the "preserving affordable housing" program function. The 
purpose of these grants are essentially the same as other preserving 
affordable housing grants — namely, to assist NeighborWorks® organizations 
in -cheir efforts to promote affordable housing opportunities for lower-and 
moderate-income households. The grant classifications differed only to the 
extent of the expected involvement with the secondary market administered by 
NHSA. This distinction proved cumbersome because it was often too early to 
determine the exact nature of NHSA's expected involvement at the time grants 
were budgeted and obligated. 

The other expenses in this program function related to various Neighborhood 
Reinvestment staff who assist NeighborWorks* organizations to access the 
products offered by Neighborhood Housing Services of America. 



89 



FY 1993 


n 


' 1993 


CHANGE 




JUSTIFICATION 


ESTIMATE 
$ 50,000 


s 


% 


$ 


$ 50,000 


NA 







5,000 


5,000 


NA 













0% 













0% 













0% 







5,000 


5,000 


NA 


4.579,909 


-L. 


299.990 


(299,999) - 


6% 


$4,570,000 


$4, 


340,000 


$(230,000) - 


5% 



330 



March 25, 1993 

Changes in FY 1993 EstlMte from FY 19 93 Justification 

OSES OF FUNDS; 

Conpensat ion 

Travel 

Professional Services 

Conferences/Horkshops 

Occupancy 

Other Operating Costs 

Grants 

Total Uses of Funds 

Program Description - Secondary Market Activities 

In FY 1994, this program function will include two types of grants: 

An administrative grant to NHSA covers the cost of servicing 
the existing portfolio, purchasing loans and developing 
additional social investments. 

A capital grant to NHSA covers reserve requirements and 

subsidy dolleurs to enhance the yield to the investor. 
Portions of this grant sure also used for warehousing 
NeighborWorlcs* loans until the sunount purchased by NHSA is 
large enough to close with the investor. 

(A third grant classification, secondary narlcet 
access grants, was tised in FY 1993 and FY 1992 to 
identify grants that Neighborhood Reinvestment made 
to NeighborWorks* orgsmizations contingent upon a 
commitment of NHSA's resources to fund pre- 
development, acquisition and other equity purposes, 
as well as recapitalization of revolving loan 
funds. In FY 1994, most of these secondary market 
access grant funds will be classified as 
"preserving affordable housing", since the precise 
nature of NHSA's involvement is difficult to 
predict when budgeting and executing grants.) 

NHSA's role is critical to the success of the NelghborWorks* 
network. NeighborWorkse orgsmizations sell loans to NHSA to 
increase the liquidity of revolving loan and capital project 
funds. Under the terms of most of the agreements with social 
investors, the loans are purchased "with recourse," which 
means that loans delinquent 90 days or more must be 
substituted or repurchased. 

90 



331 



March 25, 1993 

Nalghborhood Housing Services of America has experienced only 
24 loan defaults; the average delinquency rate on payments of 
loans purchased from the NeighborWorKs* network is 2.05 
percent. Therefore, NHSA's board of directors has agreed to 
increase its ability to purchase loans by reducing the reserve 
requirement of loans held by an NHS for replacement from 100 
percent to 50 percent of non-delinquent loans. This increases 
the potential of leveraging funds that NeighborWorks* 
organizations raise from a previous leverage ratio of 2 to 1 
to a ratio of 3 to 1. 

In carrying out its mission. Neighborhood Housing Services of 
America balances these five key factors: 1) availability of 
capital; 2) needs of the NeighborWorks* network; 3) ability 
of NelghborWorks* organizations to deliver products; 4) 
capacity of NHSA; and 5) needs of those who invest in NHSA. 
A more complete description of NHSA's work is found under the 
tab entitled. Neighborhood Housing Services of America. 

FY 1993 Projections - Secondary Market Activities 

Dtiring FY 1993, NHSA will increase its major new product line: 
first mortgage loans with PMI (private mortgage Insurance) 
non-recourse lending. With support from the National Co-op 
Bank Development Corporation, NHSA will also continue to lend 
to NeighborWorks* organizations to support the acquisition and 
rehab of existing properties or to initiate new construction. 

NHSA expects to substantially exceed its FY 1993 goal by 
purchasing $22 million in loans. NHSA's FY 1993 projected 
activity by product is as follows: rehabilitation loans, 
$3,000,000; first mortgages, $16,600,000, multifamily 
permanent, $1,700,000; and multifamily development bridge 
loans, $700,000. Multifamily placements of $20 million are 
also anticipated. 

FY 1992 Accomplishments - Secondarv Market Activities 

In FY 1992, NHSA purchased or originated $17,489 million in 
loans on behalf of NeighborHorks* organizations, bringing the 
total amount of all loans ever purchased to over $74.5 
million. FY 1992 was a year of exceptional growth in new 
lending resources and products. The private mortgage 
insurance product with PMI and the World Savings and Loan 
Association was developed to fill a particular market niche. 
NHSA's actual FY 1992 purchase activity by product is as 
follows: rehabilitation loans, $3,659,000; first mortgages, 
$11,425,000; multifamily permanent, $790,000; and development 
bridge loans, $1,615,000. 



fl 



332 



March 25, 1993 



ADUVISTK&TZOH 



FY 92 
ACTUAL 

Core Appropriation ($000s) $3,415 
Non-appropriated ($000s) 714 

Total Expenses ($000s) $4,130 

Total Sources ($000s) $33,191 
Percent of All Sources 12% 



FY 93 

JUST. 

BUDGET 

$3,648 
300 

$3,948 

$29,750 
13% 



FY 93 

EST. 

$3,615 
288 



FY 94 
JVST, 

$4,019 



CHANGE 
FY 93 EST.\ 
FY 94 JUST. 




$3,903 $4,319 $416 11% 

$30,135 $29,361 
13% 14% 



FY 1994 Goals - Administration 

In accordance witb the National Affordable Housing Act (P.L. 101- 
625), the Corporation's administrative expenses, as defined above, 
are held to 15 percent of expenditures. The Office of the 
Executive Director will manage and promote the Corporation in 
accordance with legislative mandates etnd prudent fiscal practices. 

Finance and Budget 

will seek to receive an unqualified external audit with 
no major Issues raised in the auditors reports, devise 
and monitor clear and accurate budgets and Implement 
improved accounting software. 

The Office of the Gen eral Counsel 

will seeX to resolve all legal issues in the best 
interests of the Corporation in accordance with 
applicable law. 

Office Services and Computer Operations 
will continue to work closely with the Government 
Services Administration (GSA) to revise and administer 
purchasing and contracting services policies and 
procedures to obtain the most favorable pricing and 
product quality to meet the Corporation's needs. The 
computer services zmd data center operations will 
continue to improve the operation of our data processing 
operation, provide computer operations training and 
maintain inventory emd control computer equipment. 

Human Resources 

will provide personnel management and staff development 
services to the corporation maintaining its benefits 
program, corporate insurance requirements. Equal 
Employment Opportiuiity (EEO) reporting, reciruiting, new 
staff orientation amd professional development progreuns. 



92 



333 



March 25, 1993 



Summary of FY 1994 Budge t Request 

In FY 1994, $4,319,000 Is expected to be obligated under the 
administrative function; this represents nearly 14 percent of the 
total sources available to the Corporation in FY 1994. 

Explanation of Increase/Decrease - FY 1993/FY 1994 



USES OF FUNDS: 

Compensation 

Travel 

Professional Services 

Conferences /Workshops 

Occupancy 

Other Operating Costs 

Grants 

Total Uses of Funds 



FY 1993 
Estimate 


FY 1994 

JM§ti£icati9n 




CHANGE 

s 


\ 


$2,476,000 

84,000 

220,000 

60,000 

440,000 

623,000 




$2, 


,800,000 

86,000 

226,000 

62,000 

503,000 

642,000 

9 


$ 


324,000 

2,000 

6,000 

2,000 

63,000 

19,000 

9 


13% 
2% 
3% 
3% 

14% 
3% 
NA 


$3,903,000 


$4, 


,319,000 


$ 


416,000 


11% 



Expenses of this function are expected to rise in FY 1994 primarily from 
price increases. Because the lease of our office headquarters in Washington 
D.C. provides for a 13 percent price increase in FY 1994, we are 
investigating options to contain this cost. The compensation line is 
expected to increase because several vacated positions frozen in FY 1993 will 
be filled in FY 1994. A new position, the Policy Analysis Director, has been 
created to help the NeighborWor)cs» network identify and disseminate 
information regarding changing federal regulations and state and local 
resources available to fund community development efforts. 

Changes in FY 1993 Estimate from FY 1993 Justification 



VSBS or rvHDS: 


FY 1993 
JV5Tiri<PATIPN 

$2,457,000 

99,000 

234,000 

70,000 

480,000 

608,000 

9 


FY 1993 
ESTIMATE 

$2,476,000 

84,000 

220,000 

60,000 

440,000 

623,000 




CHANGE 
S 


\ 


Compensation 

Travel 

Professional Services 

Conferences/Workshops 

Occupancy 

Other Operating Costs 

Grants 


$ 19,000 
(15,000) 
(14,000) 
(10,000) 
(40,000) 
15,000 



1% 

-15% 

-6% 

-14% 

-8% 

2% 

NA 



Total Uses of Funds 



$3,948,000 $3,903,000 $ (45,000) -1% 



fS 



334 

March 25, 1993 

Proqrzun Description - Adminis tration 

This function encompasses core activities necessary to 
maintain and support the organization in a legally and 
financially responsible manner. The subcategories are 
described below. 

The Office of the Executive D irector 
is responsible for the overall administration of 
programs and activities as prescribed by the board 
of directors and for the activities and 
implementation of policies to meet corporate and 
congressional goals. The executive director 
provides direction to officers and employees of the 
Corporation, represents and speaks for the 
Corporation in dealings with diverse constituencies 
and provides relevant information to management, 
staff and affiliates. 

The executive director's office is responsible for 
serving as liaison between the Corporation and the 
Executive and Legislative branches of the federal 
government as well as between the Corporation and 
the NeighborWorks* network. The internal audit 
function is included in the executive director's 
office costs. This includes the review, analysis 
and appraisal of the Corporation's financial and 
non-financial operations. 

Finance and Budget 

assures that the financial activity of the 
Corporation is properly maintained and recorded. 
The department formulates an annual budget, 
prepares budget justifications and monitors the 
budget as the year progresses. Other functions 
include payroll, accounts payable, accounts 
receivable, corporate travel, billings, grant 
accounting and compliance review. The department 
prepares internal financial reports for the 
Corporation and responds to the internal audit 
director as requested. 

The Office of the Ge neral Counsel 

provides advice, counsel and representation to the 
management and staff of Neighborhood Reinvestment. 
Major functions include interpreting statutes that 
may affect the Corporation (such as Equal 
Employment Opportunity, the Freedom of Information 
and the Sunshine Act) ; representing the Corporation 
in litigation and contract negotiations; reviewing 

94 



335 



March 25, 1993 

legislative and administrative proceedings; and 
aiding in the training and informational programs 
for staff and NeighborWorks* organizations on legal 
matters affecting community development. The 
functions of the Secretary of the Corporation are 
also located within the general counsel's office. 
These functions include arranging board of 
directors and committee meetings, maintaining board 
minutes and other corporate minutes, and reviewing 
board resolutions. 

Office Services and C omputer Operations 
arranges for the purchase and rental of equipment, 
furniture and office supplies; identifies, 
negotiates and manages office-space leases; 
negotiates insurance policies and claims; and 
operates and maintains mail, messenger and 
duplicating services. 

Human Resources 

oversees all hiring and termination of employees. 
The department develops job descriptions, 
classification structures, pay rates, and personnel 
policies and procedures. The department 
coordinates the procedures for performance 
evaluations and merit increases, provides EEO 
information, maintains personnel files and 
coordinates use of temporary assistance. Human 
resources also administers the tuition 
reimbursement and flexible benefit programs. 

FY 1993 Goals - Administration 

In accordance with the National Affordable Housing Act (P.L. 
101-625), the Corporation's administrative expenses will be 
held to less than 15 percent of expenditures. 

Office of the Executive Director 

will manage and promote the Corporation in 
accordance with legislative mandates and prudent 
fiscal practices. 

Finance and Budget 

will seek an unqualified external audit with no 
major issues raised in the OMB A-133 reports. A 
revised travel policy will be implemented. 

The Office of the Gener al Counsel 

will seek to resolve all legal issues in the best 

interests of the Corporation in accordance with 

9S 



336 



March 25, 1993 

applicable laws. Early in FV 1993, the only 
outstanding lawsuit against the Corporation was 
dismissed in the Corporation's favor in federal 
court. The plaintiff has refiled in state court. 

Office Services and C omputer Operations 
is working to identify improved hardware and 
software that will link the purchase order system 
to our general ledger and an inventory control data 
base. The Corporation is seeking to improve its 
computer networking capabilities, particularly in 
budgeting, accounting and information systems. 

Human Resources 

will reorganize the staff development unit to 
reduce the number of staff and improve services to 
the corporation. 

FY 1992 Accomplishments - Administration 

In accordance with the National Affordable Housing Act (P.L. 
101-625), the Corporation's administrative expenses were held 
to less than 15 percent of expenditures. 

Office of the Execut ive Director 

managed and promoted the Corporation in accordance 

with legislative mandates and prudent fiscal 

practices. 

Finance and Budget 

improved upon the system for functional budgeting 
and accounting, helping to define, explain and 
monitor the new process. The Corporation received 
an unqualified audit performed under the guidelines 
described in the Office of Management and Budget's 
Circular A-133, with no serious adverse comments to 
management. A revised, streamlined travel policy 
was crafted and approved for implementation in FY 
1993. A copy of the FY 1992 audit is in the 
appendix under tab Y. 

General Counsel 

resolved all legal issues in the best interests of 
the Corporation. The Office of the General Counsel 
devised new grant documents, provided training to 
our staff and assisted new organizations to apply 
for 501(c) 3 tax-exempt status. 

Office Services and Computer Operations 

enhanced the main computer system's taping 

• « 



337 



March 25, 1993 



equipment from 10-inch reels to cassettes, thereby 
reducing system backup time from over 10 hours per 
week to about two hours per week. Backups are now 
programmed during non-working hours eliminating 
system down time for backups. 

Human Resourc«»g 

performed several desk audits to properly document 
the responsibilities of all positions. The 
department subsequently administered a new pay and 
classification program that resulted in the 
reclassification of several positions. The 
Corporation's organizational chart and 
classification/compensation plan is in the appendix 
under tab Z. 



97 



338 



2MifM^ 94ACT/93EST94JUST 



> UlNVBSmENT OORPOSAnON 
COUPAKDON OP FY 1993 EynMATBTOFy I9M JUSTmCA'nON 



aOUICBS OP FUNDS: 

AppfopncticMi 
Con 
Equity Ctpinl 

Total Appropriaiioa* 

ktcmt EuBinfiaBd Odwr RtvoH 
UMpMntioa F«««aiid Dooatioai 

PlOfOCt DWMO|HIim 

Cury l*onwo Fran Praviom Yew 
Tool OHht Soufca 
TOTAL SOUtCB OF FUNDS 



nm) FY I9M 

KM nJsnncAnoH (dbc«ba5B> 



$27,976,000 
716,000 



2t,762.0aO 



1,373.000 



S3O.I3J,0aO 



$27,976,000 




27,976,000 



$0 

(y7»6,000) 



(7(6,000) 



J9i,000 595,000 

265,000 365,000 

225.000 (B) 225,000 (B) 

2M,000 300,000 (A) 12.000 



IJ»5.000 



S29J6I,000 



12,000 



(1774,000) 



0« 
-I00» 



OS 
OS 
OS 
4S 

IS 

-3S 



USES OF FUNDS: 

Opcntiny BJtpMMm 



CoaJmncM tad WotfcAopc 



Odwr Op«niia( Omu 

Sob taMl - Optfiting ExpoatM 

CmAKTS: 

CiMMM Of Nw Nci^wafWorai Oi||umziCkms 



t*l 



NHSAC 
NHSACiFM 



Sab UMl - Con OnMa 



TOTAL UB or WNOS 



112,303,000 


$12,400,000 


$97,000 


IS 


l,5«t,000 


1.624.000 


56,000 


4S 


IJS7.000 


1.137.000 


(250,000) 


-US 


415.000 


415.000 





OS 


1.600.000 


1.635.000 


35,000 


2S 


2020.000 


2,220.000 





OS 


tl9.493.000 


$19,431,000 


($62,000) 


IS 


suo.ooo 


$615,000 


($165,000) 


-19S 


2.143.000 (B) 


2,575.000 (B) 


432,000 


20S 


1.667.000 


2.700.000 


1,033,000 


62S 


916.000 


620.000 


(296,000) 


-32S 


2j50.oao 


2J50.000 





OS 


992,000 


1,000,000 


1,000 


IS 


93S.000 





(93«.000) 


-lOOS 


$9,156,000 


$9,930,000 


n4,oao 


IS 


716.000 





(7»6.00()) 


-lOOS 


OO.I35.000 


$29 J6 1,000 


($774.00(>) 


■3S 



Ml iJMi «^i*>ilii atlt 



211 



fSi 



-3S 



(A) ^M n m^tUrt 1993 «<i»rc«» of «■<« tn t «d s Mi<. ». M i r l y ili m» ■ $300.000 anj fa«WM< 
■ fan «ai ka miUMt to *m4 FY 1994 aclMlia. 



(B) ti aMUam «• km PKoaljr Innad ikM «m Sa>dai FovudMiassiy gnal $2*5.000 ia FY 1993 aad $240,000 ia FY 1994. 
IWat *B6i via p ri—rily praoida «»« capaciqr liiiilrfi^ (raala lo NajfkboiWocfci ~ ^-.~i— 



98 



339 



March 25, 1993 



MBIOHBOBHOOD RBZMVBSTMBIIT CORPORATIOH 
Tt 1993 BSTIMATB COKPAREO TO FT 1994 JUSTIFZCATZOH 



ggrocBg or rwp^i 




Appropriation: 




FY 1993 FY 1994 


Increase % 

(D?<?re?»s?) Change 


Core $ 27,976,000 $ 27,976,000 
Eauity Caoital 786.000 o 
$ 28,762,000 $ 27,976,000 


S 0% 

f786.000) -100% 
$ (786,000) - 3% 



The requested FY 1994 core appropriation as recommended by the 
President is the same as the FY 1993 enacted level. In FY 
1993, we will obligate the remainder of the $5 million 
appropriation authorized in FY 1992 to provide revolving 
homeownership lending capital as well as equity capital for 
affordable lower-income rental and mutual housing units. This 
special $5 million appropriation is being received from the 
U.S. Treasury in eight quarterly payments of $625,000 each. 
The first payment was received in September of 1992; the final 
payment is due in June of 1994. 

Interest and Other Revenue: 

FY 1993 FY 1994 Increase % 
Estimate Justification (Decrease! Change 

Interest $ 480,000 $ 480,000 $ 0% 

Other Revenue 115,000 115,000 0% 



$ 595,000 $ 595,000 $ 0% 

We are currently earning an average of 3 percent interest on 
our cash investments; the FY 1994 justification assumes a 
similar interest rate. Projections for other revenue, such as 
revenue sharing from our designated travel agency and return 
of grant funds disbursed in prior years, remain at the FY 1993 
level. 



99 



340 



March 25, 1993 

Bagistratloa r«tts and Donations: 

FY 1993 FY 1994 Increase % 
Estimate Justification rPecreaseJ Change 

$ 265,000 $ 265,000 $ 0% 

Since no additional training events are budgeted, it is 
anticipated that registration fees collected from participants 
at training events and educational workshops sponsored by 
Neighborhood Reinvestment will remain constant in FY 1994. If 
receipts exceed our projection, the additional revenue will 
permit the Corporation to provide more training contact hours. 

Pro j act Davalopmant: 

FY 1993 FY 1994 Increase % 
Estimate Justification (Decreased Change 

$ 225,000 $ 225,000 $ 0% 

The Corporation receives funds from local governments and 
other entities to defray costs of developing new 
NeighborWorksO organizations and to undertake special efforts. 
These contracts and grants cover such costs as compensation 
for development coordinators, office space, development 
workshops and grants to NeighborWorks* organizations. 
Neighborhood Reinvestment serves primarily as the fiscal agent 
for disbursement; therefore, these funds have been generally 
restricted to costs of specific projects and do not defray 
general expenses of the Corporation. Not included in the 
above projections is the recent announcement that in addition 
to the $114,000 received from the Surdna Foundation in FY 
1992, the Corporation may receive another $285,000 in FY 1993 
and $240,000 in FY 1994. These funds would primarily provide 
direct capacity-building grants to NeighborWorks* 
organizations. 

Carry rorvard Pron Previous Year: 

FY 1993 FY 1994 Increase % 
Estimatg JM8tificati<?n (Decreased Change 

$ 288,000 $ 300,000 $ 12,000 4% 

Each fiscal year, the Corporation prepares a budget designed 
to obligate all sources of funds. However, some funds always 
remain to be carried forward to fund activities in the next 
fiscal year. 

100 



341 



March 25, 1993 

DSBB OF ALL 80DRCBB OF FU1ID8; 

CoBp«ns«tloB I 

FY 1993 FY 1994 Increase % 
Estimate Justification (Decrease! Change 

$ 12,303,000 $ 12,400,000 $ 97,000 1« 

This category includes funds for gross salaries, payroll taxes 
and employee benefits. Benefits include health and dental 
insurance, life and disability insurance, contributions to an 
employee 401 (Ic) pension plan, tuition reimbursements, employee 
relocation costs and a flexible (cafeteria) benefit plan. 
Merit increases are provided to employees who perform at a 
satisfactory level or better. A pool equal to approximately 
3 percent of gross salaries is made available to fund merit 
increases, promotions, and reclassifications. The Corporation 
does not provide cost-of-living adjustments. This pool is 40 
percent less in FY 1994 than in FY 1993. The FY 1994 budget 
provides for 215 full-time equivalent employees (FTEs) . This 
is a reduction of six from the 221 FTEs estimated in FY 1993. 
The Corporation has budgeted for a modest increase in the cost 
of health and dental insurance; if these insurance premiums 
increase more dramatically, other employee benefits would be 
curtailed or the number of FTEs in FY 1994 would decline. 

Travel : 

FY 1993 FY 1994 Increase % 
Estimate Justification fPecr easel QiaOSfi 

$ 1,568,000 $ 1,624,000 $ 56,000 4% 

This line provides for travel and related expenses for staff 
and non-staff on Neighborhood Reinvestment business. 
Government -discounted rates, negotiated by the General 
Services Administration, are availeU>le for most transportation 
and lodging. The budget includes a 4 percent increase to 
cover inflationary increases and the provision of aore on-site 
assistance provided to NelghborMorksa organizations by 
Neighborhood Reinvestaent staff. 



X0& 



342 



March 25, 1993 

Professional ssrvioas: 

FY 1993 FY 1994 Increase % 
Eatlaate Justification (Decreased Change 

$ 1,387,000 $ 1,137,000 $(250,000) -18% 

This category provides funds for professional service contract 
fees and expenses such as the annual corporate financial 
audit, payroll services and outside legal counsel. Some 
contracted individuals conduct a portion of the training 
sessions at training institutes and other events; others 
assist with program reviews of NeighborWorks* organizations or 
research and write special materials. Specific short-term 
assistance in auditing, accounting, fund raising, construction 
and other technical areas are also provided to NeighborWorks* 
organizations through professional service contracts. The FY 
1993 budget includes $250,000 to promote community development 
leadership projects. Professional service expenses for this 
activity are not expected to continue at this level in FY 
1994. 

CoBfsrenoss and Workshops: 

FY 1993 FY 1994 Increase % 
Estimate Justification (Decreased Change 

$ 415,000 $ 415,000 $ 0% 

This line covers expenses such as group meals, ground 
transportation, meeting rooms and registration fees for 
educational conferences, training workshops, progr2un reviews 
and staff meetings. Seminars conducted on a district-wide or 
regional basis are more cost effective to disseminate 
Information and provide training than one-on-one technical 
assistance personally provided at each site. 

Oooupanoy: 

FY 1993 FY 1994 Increase % 

Estimate Justification fP?<?i:ga>?g) Chang? 

$ 1,600,000 $ 1,635,000 $ 35,000 2% 

Escalations in existing leases and utility costs for offices 
leased by Neighborhood Reinvestment will be offset by the 
closing or consolidation of two or more sites. 



102 



343 



March 25, 1993 



Other Oparatln? Costa: 



FY 1993 FY 1994 Increase % 

fi gtimatg J^Stifigalpipn fPecrease^ change 



$ 2,220,000 $2,220,000 



0% 



This category includes several expense lines includina 
telephone, postage, delivery services, printing off iCI 
supplies, purchases of capitalized and expendrble^propertv 
insurance, temporary clerical help, publications dues' 
T^llllT ""T^^^ ^'"' «<I^iP">«"t: "^'maintenance ' GiveA 
oSbiica??^^ increases, some reductions in temporary help InS 
publications, dues and subscriptions are anticipated. 

TOTAL GRAWTSi 

FY 1993 FY 1994 Increase 



_'*."'- '» J-»»4 Increase % 
Egtimatg Justlficatinn (Decrease) change 

^""^ 5 9,856,000 $ 9,930,000 $ 74 000 1* 
Equity capital Tfil.^ L^ r786.'°nm -looj 

Total $10,642,000 $ 9,930,000 $ (712,000) -7% 

ToL '"''!?*^ .1°'^ .'=°" grants will increase one percent in FY 
1994. One third of all FY 1994 resources will fund chants to 
Sh^.h^""^ activities Of the NeighborWorks* network and 
r^i^ 5^°°*^ Housing Services of America. In FY 1992 ?Se 
re^?vina°hnr"'^^^*" appropriation of $5 millilA to provSl 
IfforH^H?-, ? °""^''^^^P lending capital and equity capital for 
rlm!ind!i «i°vK''"^"*=°"'^ ''^"'^*^ *"** ""tual housing units The 
remainder of this appropriation will be fully obligated in FY 

creation of Hew HeighborWorJcs* Organizations: 

FY 1993 FY 1994 Increase % 
Egtimatg Justifigatjnn (Decreasp^ change 

$ 850,000 $ 685,000 $ (165,000) -19% 

Most of the grants included in this category fund a portion of 
the operating costs of some Mutual HousinV Associatflns A^ 
^ff!cS",^'H^^.°'lf.,*'.^^^^°P sufficient units to^come ^elf! 
v«f«i^ K J^"= stabilize their own local support, the need for 
Neighborhood Reinvestment to make such grants diminishes In 
FY 1994, approximately $250,000 in creation grants wYli ^ 



103 



344 



March 25, 1993 

grants will be obligated to initiate the development of two 
new NeighborWorks* organizations and to permit three existing 
organizations to join the network. 

oxgaaiiational Expansion: 

FY 1993 FY 1994 Increase % 
Estiaatg J«Btitigflti<?n f Decreased Change 

$ 2,143,000 $ 2,575,000 $ 432,000 20% 

As the NeighborWorks* network grows and becomes involved in 
more complex activities, the demand increases throughout the 
growing network for funds to support fund raising, financial 
management, resource development, staff recruitment and 
retention, board development and new neighborhood 
revitalization strategies. Approximately $300,000 of the 
planned increase in FY 1994 is due to the shift of model 
strategy and research grants from the training and Informing 
category. This shift is desirable because the distinction 
between grants that funded the testing of totally "new" 
approaches compared to those that increased the capacity of 
NeighborWorks* organizations to implement proven strategies 
was difficult to document and determine. Moreover, the 
Corporation awards grants based on the merits of the 
applications and the abilities of each NeighborWorks* 
organization; a pre-set allocation of grants specifically for 
novel approaches proved arbitrary and unworkable. 

Preserving Affordable Housing: 

FY 1993 FY 1994 Increase % 
EStimatg Justification (Decreased Chanoe 

$ 1,667,000 $ 2,700,000 $1,033,000 62% 

In FY 1994, $938,000 previously budgeted under the title 
"secondary market access grants" will be included in this 
category because the purpose of these grants is essentially 
the same as preserving affordable housing grants, namely, to 
assist NeighborWorks* organizations in their efforts to 
promote affordable housing opportunities for lower- and 
moderate- income households. The grant classifications 
differed only to the extent of the expected Involvement with 
the secondary market administered by the Neighborhood Housing 
Services of America (NHSA) . This distinction proved 
cumbersome Isecause it was often too early to determine the 
exact nature of NHSA's expected involvement at the tine grants 
were budgeted and obligated. 



104 



345 



March 25, 1993 

Training t Informing: 

FY 1993 FY 1994 Increase % 
Estimate Justification (Decreasel Change 

$ 916,000 $ 620,000 $ 296,000 -32% 

This line provides expendable grants to cover expenses related 
to training events sponsored by Neighborhood Reinvestment and 
grants to non-profit organizations involved in researching new 
strategies to address neighborhood revitalization issues. In 
FY 1994, this category includes only training grants that 
offset the expenses of participants from NeighborWorks* 
organizations to attend training institutes and other 
educational fortims conducted on a district or regional basis. 

SECONDMIY MARKET ACTIVITIES 

This progreuB function includes three inter-related, mutually 
dependent grants. 

■H8A Administrativ* Grant: 

FY 1993 FY 1994 Increase % 
EStifflatg Justification (Decrease) Change 

$ 2,350,000 $ 2,350,000 $ 0% 

This grant covers the costs of servicing the existing 
secondary market portfolio, purchasing loans and developing 
additional social investments. 

MHSA Capital arantt 

FY 1993 FY 1994 Increase % 
Egtiaatg Justification f Decrease) Change 

$ 992,000 $ 1,000,000 $ 8,000 1% 

This grant to NHSA provides funds to purchase NeighborWorks* 
network loan portfolios, meet reserve requirements and, if 
necessary, cover security interest subsidies. 



lOS 



346 



March 25, 1993 



Saoondary Market Aoeass: 



FY 1993 FY 1994 Increase % 
EStimat? Justification f Decrease) Change 

$ 938,000 $ $ (938,000) -100% 



In FY 1993, secondary market access grants will be awarded to 
NeighborWorks* organizations to meet NHSA's requirements for 
secondary market participation. Grant funds nay be used for 
pre-development, acquisition or equity purposes and to 
recapitalize the local revolving loan funds. In FY 1994, 
these grants will be classified as preserving affordable 
housing grants. 

Iqulty Capital: 

FY 1993 FY 1994 Increase % 
EStiBatft Justification (Decreased Qiiuoas 

$ 787,000 $ $ (787,000) -100% 

This category tracks the equity capital grants funded from the 
additional $5 million appropriation authorized in FY 1992. 
These grants will be fully obligated in FY 1993. 



10« 



347 



VMl^n »4ACr/93JUST»)EST 



"■nHaOBBOOD UDtVESTMBNT OOarOKATKlN 

« OP PV l*n JUmnCATKlM TO FY I9n BSTD4ATB 



•OUtCSi OF FUNM: 

Appiu|NiMiuu 
Con 
Eigucy Cipilal 

Toul 



R«futrttioa FeMuid Hn— *^ m 

Protect DweiopniMM 

Cuiy Fomid From Pnvioua Yew 

Toul Olfcv Sourca 

TOTAL SOUBCSS OF FUNDS 

USES OF FUNDS: 

Opondilf E>|»iac>: 



Ti»vd 

Profe«nofHl Sofvicoa 

Coofemca uid WccUiapi 

Occupancy 

OUlor Opnuiiig Co«a 

SutXoul - 0|Hnlii« EjilKim 

ORANTS: 

Craalioa of Now NeigblwrWo^ Offnzitioao 



Praervtii( AflordaUe Houa^ 
Training A Infbnnii^ 
Secoodary Mute! Acthnbo: 

NHSA Operalh^ 

NIUACapilaJ 

Accoaa Socoodary MaitM 

Subtotal - Con Onai 
Equity Capital Chaala 

TCrrALUSB OF FUNDS 



FV19W 
JUSnFKAmN 


FVI9n 
Bn«IATB(A> 


(DBCBBAaH) 


s 


(27,976.000 


$27,976,000 


$0 


0« 





716.000 
2t.7«2.000 


$7*6,000 
7*6,000 


NA 


27.976.000 


3S 


9*4.000 
265.000 
225.000 
300,000 


595.000 
265.000 
225.000 (B) 
2U.00O (A) 


(3*9,000) 





(12,000) 


-40« 
OS 
OS 
-4S 


1,774.000 


1.373.000 


(401,000) 


-23 S 


$29,750,000 


$30,135,000 


$3*5.000 


IS 


tl2J(».0O0 
1,675,000 
1,440,000 
475,000 
1.650,000 
2J45.00O 


$I2J03.000 
I.56S.000 
UI7.000 
415.000 
1.600.000 
2.220.000 


$0 
(107.000) 
(53.000) 
(60.000) 
(50.000) 
(25.000) 


OS 
-6S 
■4S 
-13S 
-3S 
-IS 


si9,7M,aoa 


$19,493,000 


($295,000) 


■IS 


SI. 041 .000 

l.76«,000 

1,667.000 

916.000 


$S50.000 
2.141,000 (B) 
1,667,000 
916,000 


($191,000) 

375.000 






-1«S 
21 S 
OS 
OS 


2.431.000 
1,092,000 
1,040.000 


2^50,000 
992.000 
93«,000 


(M.OOO) 
(100.000) 
(102,000) 


-4S 

-9S 
-lOS 


S9.9«2,000 


$9.(56,000 


($106,000) 


-IS 





7*6,000 


716.000 


NA 


J29.750.000 


$30,115,000 


$3*5.000 


IS 



FuU-tima equivakfll Mair 



217 



221 



(A) Ahhou,hdlFY1993«»r«oflb«l..,,bud,««l.„a«icipaI.,h...»00.000canyf«w«d 
(rom varioua oipaaaa liMa afiO ba availabla to Kud FY 1994 activiliaa. 



(B) b 



2S 



«. hay. r.co«ly loan-d dat ch. Surtn. FoundalioB may gram $2*5.000 in FY 1993 and $240,000 in FY 1994 
> wdl ptlnianly provida dicoa capacity boildin* fiMla to NrigbtocWorti ot»anii«ioni. 



107 



348 



March 25, 1993 



MEIGHBOSBOOO REINVESTMENT CORFOSATION 
FY 1993 JUSTIFICATION COMPARED TO FY 1993 CURRENT ESTIMATE 



SOURCES OF FUNDS; 

Appropr latlon : 



Core 
Equity 



FY 1993 


FY 1993 


Increase 
roecreasel 


% 

Change 


$ 27,976,000 



$ 27,976,000 
786.000 


$ 
786.000 


0% 
NA 


$ 27,976,000 


S 28,762,000 


$ 786,000 


3% 



The actual FY 1993 appropriation matched the fig\ire 
reconunended by the President. However, in January of 1992 
when the FY 1993 justification was prepared, we had planned to 
obligate the entire additional $5 million appropriation 
authorized in FY 1992 to provide revolving homeownership 
lending capital and equity capital for housing affordable to 
lower- income households by the close of FY 1992. Equity 
grants totaling $4,214,000,000 were executed in FY 1992; in FY 
1993, we will obligate the remainder. These funds are being 
disbursed from the U.S. Treasury in eight quarterly payments. 
The first payment was received September, 1992; the last 
payment is expected in June of 1994. 

Interast and Other Revenue: 





FY 1993 
Justification 

$ 865,000 
119,000 

$ 984,000 


FY 1993 


Increase 

fDecrease) 

$ (385,000) 
U.OOOl 

$ (389,000) 


% 
Chanae 


Interest 
Other Revenue 

Total 


$ 480,000 
115.000 

$ 595,000 


-45% 
- 3% 

-40% 



The Corporation's projection of FY 1993 interest earnings has 
declined due to falling interest rates. The FY 1993 
justification prepared in January of 1992 assumed a 5 percent 
interest rate based on the prevailing interest rates at that 
time; however, actual FY 1993 cash investments are earning 
interest at the rate of 3 percent or less. 

To compensate for the reduction in FY 1993 sources of funds 
from interest (and $12,000 less than anticipated in 

108 



349 



March 25, 1993 ^ 

unobligated carry forward from FY 1992) , the FY 1993 budget 
for operating expenses has been decreased by $295,000 and the 
FY 1993 budget for grants has been reduced by a net of 
$106,000. 

Current projections for other FY 1993 revenue, such as revenue 
sharing from our designated travel agency and return of grant 
funds disbursed in prior years, are slightly less than 
projected when the FY 1993 Justification was prepared. 

Project Developaient: 

FY 1993 FY 1993 Increase % 
JUBtificatign Estimate f Decrease t Change 

$ 225,000 $ 225,000 $ 0« 

The Corporation receives funds from local governments and 
other entities to defray costs of developing new 
NeighborWorks* organizations and to undertake special efforts. 
These contracts and grants cover such costs as compensation 
for development coordinators, office space, development 
workshops and grants to NeighlsorWorks* organizations. 
Neighborhood Reinvestment serves primarily as the fiscal agent 
for disbursement; therefore, these funds have been generally 
restricted to costs of specific projects and do not defray 
general expenses of the Corporation. 

Carry rervard Froa Previous Tear: 

FY 1993 FY 1993 Increase * 
JUgtification Estimate fPecreaset Change 

$ 300,000 $ 288,000 $ (12,000) -4% 

Though the Corporation budgets all sources of funds for 
obligation, some funds always remain at fiscal year end to be 
carried forward to fund activities in the next fiscal year. 



109 



350 

March 25, 1993 

nSBS 0> ALL SODRCBS OF FDKPa; 

Co^pansatlen t 

FY 1993 FY 1993 Increase % 
JMStifigfltJgn Estimatg f Decreased Change 

$ 12,303,000 $ 12,303,000 $ 0% 

This category Includes fluids for gross salaries (including a 
five percent merit pool, but no cost-of-living increases), 
payroll taxes and employee benefits. The FY 1993 
justification assumed 217 full-time equivalent employees 
(FTEs) ; the Corporation currently estimates that we will end 
FY 1993 with 221 FTEs. To stay within the FY 1993 
compensation budget and to contain FY 1994 expenses, a 
reduction in force was implemented in the second quarter of FY 
1993; in addition, most positions now vacant will not be 
filled this year. Nevertheless, Neighborhood Reinvestment's 
board of directors may be requested to increase this line 
later in the year if our cost-containment measures do not 
produce the desired results. 

Travel: 

FY 1993 FY 1993 Increase % 

jM9t^itiPflti<?n Egt^iWfltg rPecrease^ Change 

$ 1,675,000 $ 1,568,000 $ (107,000) -6% 

Because the FY 1993 projection for interest earnings has 
declined, we intend to reduce FY 1993 travel expenses to 
approximately the actual level of FY 1992. 

Professional Servioes: 

FY 1993 FY 1993 Increase % 
Justification Estimate f Decrease 1 Change 

$ 1,440,000 $ 1,387,000 $ (53,000) -4% 

This category provides funds for professional service contract 
fees and expenses such as the annual corporate financial 
audit, payroll services and outside legal counsel. The use of 
independent professionals for the delivery of specialized 
technical assistance to NeighborWorks* organizations will be 
reduced in order to follow congressional directives to 
allocate $250,000 to design a strategy for human resource 

110 



I 



351 



March 25, 1993 

d«v«lopn«nt in the conununlty-based, non-profit development 
industry. (The other money for the Community Development 
Leadership Project has been shifted from creation grants since 
the number of new developments has declined from eight in the 
FY 1993 Justification to the current FY 1993 estimate of 
four) . 

Conferences and Workshops: 

FY 1993 FY 1993 Increase % 
JUStificatign Estimate (Decreased Change 

$ 475,000 $ 415,000 $ (60,000) -13% 

This line provides for group meals, ground transportation, 
meeting rooms and registration fees incurred at events such as 
educational conferences, training workshops, program reviews 
and staff meetings. Plans for district-based workshops and 
seminars will be curtailed because of the decline in FY 1993 
interest earnings. 

Occupancy: 

FY 1993 FY 1993 Increase % 
JM8tificati«?n Estimatg f Decreased Change 

$ 1,650,000 $ 1,600,000 $ (50,000) -3% 

This category covers rent and utilities for all Neighborhood 
Reinvestment offices. This expense is expected to decrease 
due to less than estimated escalations in existing lease 
arrangements . 

Other Operating Costs: 

FY 1993 FY 1993 Increase % 
JVtgtificati'yn Estimate (Decreased Chance 

$ 2,245,000 $ 2,220,000 $ (25,000) -1% 

This expense line consists of various accounts related to 
office expenses: telephone, postage and delivery, printing 
and supplies, insurance, agency fees for temporary hel^, 
equipment rental, equipment maintenance, publications, dues, 
subscriptions, classified advertising (primarily for 
recruitment) , expendable property, purchases of fixed assets 
and miscellaneous other expenses. Decreases in the cost of 
long-distance telephone lines will be largely offset by 
inflationary price increases. 



Ill 



352 



March 25, 1993 
GRANT BXPEM8E8; 
TOTMi gRAMTg; 





FY 1993 FY 1993 


Increase 
(Pegrest^e) 


% 

Change 


Core 

Equity Capital 


$ 9,962,000 $ 9,856,000 
786.000 


$ (106,000) 
786.000 


-1% 
NA 


Total 


$ 9,962,000 $ 10,642,000 


$ 680,000 


7% 



The FY 1993 ctirrent estimate includes equity capital grants funded 
by a special $5 million FY 1992 appropriation. All but $786,000 of 
grants funded by this appropriation was obligated in FY 1992. Core 
grants have declined due to lower FY 1993 interest earnings. 

Creation of Haw Heighborworks* Organisations: 

FY 1993 FY 1993 Increase % 
JVlStifigatign Estimate ( Decrease > Change 

$ 1,041,000 $ 850,000 $ (191,000) -18« 

This grant category provides funds for expendable feasibility, 
development and start-up costs to new or expanding NeighborWorks* 
organizations including Neighborhood Housing Services and Mutual 
Housing Associations. In response to the FY 1993 Veterans Affairs, 
Housing and Urban Development and Independent Agencies 
appropriations conference report (H. Rpt. 102-902) , this grant 
expense is expected to decrease from the justification because 
goals for developments of new organizations have declined from 
eight to four. One of the four FY 1993 starts will be an 
affiliation of an existing organization rather than the development 
of a totally new entity. Affiliations are less time-consuming and 
less costly than new developments. 

Organisational B^^ansion; 

FY 1993 FY 1993 Increase % 
JUStifigatiPn Estimate fPecreasel Change 

$ 1,768,000 $ 2,143,000 $ 375,000 21% 

This line provides grants to cover expendable costs related to 
geographical expansions of target areas, administrative costs for 
NelghborWorks* organizations undergoing major redevelopments or 
dissolution and capacity enhancement of existing NelghborWorks* 

112 



353 



March 25, 1993 

organizations. Each year, dozens of worthy requests for millions 
in capacity-building grants are rejected due to our financial 
constraints. The Corporation hopes to increase these grants in FY 
1993 to enable NeighborWorks* organizations to make the best use of 
the funds available under the Affordable Housing Act, Community 
Development Block Grants and programs sponsored by the Federal Home 
Loan Banks. 

Prasarving Affordable Housing: 

FY 1993 FY 1993 Increase % 

JuatifJgatJQn Estimatg fPecreasei chanas 

S 1,667,000 $ 1,667,000 $ 0% 

This category provides expendable and capital grants for the 
rehabilitation of existing structures and the construction of new 
housing by NeighborWorks* organizations. 

Training t Informing: 

FY 1993 FY 1993 Increase % 
Justification Estimate (Decrease) Change 

$ 916,000 $ 916,000 $ Ot 

This line provides expendable grants to cover expenses related to 
training events sponsored by Neighborhood Reinvestment and grants 
to nonprofit organizations involved in researching new strategies 
to address neighborhood revitallzatlon Issues. 

SECONDARY MARKET ACTIVITIES 

This category Includes three types of inter-related, mutually 
dependent grants. 

BH8A Adainistrative Grant: 

FY 1993 FY 1993 Increase % 
JMStitigatiPn Estimate (Decrease) Change 

$ 2,438,000 $ 2,350,000 $(88,000) -4% 

This grant covers the costs of servicing the existing secondary 
market portfolio, purchasing loans and developing additional social 
Investments. This grant has been decreased because the staff 
function regarding the delivery of fund-raising assistance to 
NelghborWorks's organizations has shifted from Neighborhood Housing 
Services of America to Neighborhood Reinvestment. 



113 



354 



March 25, 1993 








MHSA Capital Oraati 








FY 1993 
Justification 


FY 1993 
Estimate 


Increase 


% 


$ 1,092,000 


$ 992,000 


$(100,000) 


-9* 



This grant to NHSA provides funds to purchase a portion of the loan 
portfolios produced by the NeighborWorks* network, meets reserve 
requirements and, if necessary, covers security interest subsidies. 
It has been decreased due to a reduction in our projected FY 1993 
Interest earnings. 

Aooess 8«oondar7 Market: 

FY 1993 FY 1993 Increase % 
Justification Estimate (Decrease) Change 

$ 1,040,000 S 938,000 $(102,000) -10% 

Grants in this category are awarded to NeighborWorks* organizations 
to meet NHSA's requirements for secondary market participation. 
Grant funds may be used for pre-development, acquisition or equity 
purposes and to recapitalize local revolving loan funds. Funds 
were shifted from this category to partially fund the Increased 
demand for capacity-building grants. In FY 1994, these grants will 
be classified with the preserving affordable housing grants. 

Equity Capital: 

FY 1993 FY 1993 Increase % 
JUStifigatign Estimate (Decrease) Change 

$ $ 786,000 $ 786,000 NA 

This category provides equity capital grants funded from the 
additional $5 million appropriation authorized in FY 1992 to 
finance rehabilitation loans and lower- to moderate- Income housing 
efforts of the NeighborWorks* network. All but $786,000 was 
obligated in FY 1992. 



114 



355 



29-Mm^93 WACT/92EST92ACT 



NEIGHBORHOOD REINVESTMENT CORPORATION 
COMPARDON OP FY 1991 BST1MATBTO FY 1992 ACTVAL 



JOURCBS OP FUNDS: 

Appropnatioa 
Con 
Equity Capiul 

Toul Approprulioat 

IntcTMl Eamiitgi um) Oib«r RvveniM 
Regutntioa F«c« uti DoaatioiH 
Projact Devclopmrat 
Deobtifitioo of Prior Year OruU 
Carry PorwarJ Froa Previoua Year 

Total Other SouiCM 

TOTAL SOURCES OP FUNDS 

USES OF FUNDS: 

Opeming ExpeoMa: 



Travel 

ProfaaMooal Services 

Coofenacea and Workdkopa 

Occupancy 

Otber Opeialiiig CoeU 

SuMotal - Operating Expenaea 

GRANTS: 
Craaboa of New NeigfaborWorfci Ofganizatiooa 



I Afbrdabk Houaiii( 
TniaBng A laformiiif 
Secoodary MarfcM ActivitiBa: 

NHSA Operaiiiv 

NHSA Coital 

Acceaa Secoodary Market 

S«A(otal -CoreOraota 
Equity Cafital Oraola 

TOTAL USES OP FUNDS 
CARRY FORWARD TO FY 1993 



FY 1992 


FT 1992 


■NCKEASB 


% 


BSTB«ATB 


ACTUAL (A) 


(D8CBBASB) 


CHANOB 


S26.900,000 


126,900,000 


SO 


0« 


3,000,000 


4.213,000 


(S7I7.000) 


-I6« 


31,900.000 


31.113.000 


(787.000) 


-2% 


920,000 


1.065.000 


145.000 


16S 


21J.0OO 


2U.000 


70.000 


33 S 


314,000 


262.000 


(52.000) 


-17« 





40,000 


40.000 


NA 


714,000 


714,000 





0% 


2,163,000 


2J66.000 


203.000 


9S 


£34,063,000 


S33.479.000 


($584,000) 


-2» 



$11,720,000 


$12,020,000 


S300.000 


3% 


1.664.000 


M15.000 


(149.000) 


-9» 


1.440.000 


934,000 


(506.000) 


-35 S 


490,000 


359,000 


(131.000) 


-27 » 


1,579,000 


1,472,000 


(107.000) 


-7« 


2,160,000 


2.203.000 


43,000 


2» 


S19,053.00O 


si83<s.oao 


($550,000) 


-3« 


SI. 200.000 


$U«2.000 


$182,000 


15* 


1.768.000 


2.(D9.000 


271,000 


1S» 


1.740.000 


1.750.000 


10,000 


IS 


(30.000 


819.000 


(11.000) 


-IS 


2J40.000 


2J4O.0aO 





OS 


1.092.000 


1.192.000 


100,000 


9S 


1.040.000 


953,000 


(17,000) 


-8S 


$10,010,000 


$10,475,000 


$465,000 


5S 


5.000.000 


4.213.000 


OV7.000) 


•I6S 


$34,063,000 


$33,191,000 


($872,000) 


-3S 



$288,000 



FuU-tiflM aquivalMM Maff 
(A) 



220 



221 



115 



356 



March 25, 1993 

■EZGHBORBOOD REZHVESTKEHT CORPORATION 
n 1992 BSTZM&TB ZV FY 1993 JTJSTZFICATZOH COMPARED TO 

FT 1992 ACTUAL 



80DRCB8 OF yUHD8 



Appropriation: 












FY 1992 
Estimate 


FY 1992 

Actual 


Increase 
fDecreasel 


% 

Change 


Core 

Eqpjity Capital 


$ 26,900,000 
5.000.000 


$ 26,900,000 
4.213.000 


$ 
f787.0001 


0% 
-16% 


TOTAL 


$ 31,900,000 


$ 31,113,000 


$ (787,000) 


-2% 



During the fiscal year ending September 30, 1992, the Corporation 
obtained a special appropriation of $5 million to provide 
NeighborWorks* organizations with revolving homeovmership lending 
capital and equity capital. The Corporation made grant commitments 
2md recognized as revenue $4,213,477 of this appropriation during 
FY 1992. The remainder will be obligated in FY 1993. 



Znt*r*st and Othar Revanua: 

FY 1992 
Egt^ipatg 



Interest 
Other Revenue 

Total 



S 788,000 
3,32,090 

$ 920,000 



FY 1992 
Actual 

764,000 
301.000 



Increase % 

(Decreased Change 

f (24,000) -3% 

169.000 128% 



$ 1,065,000 $ 145,000 



16% 



This revenue category includes funds from interest earned on 
investments, return of prior year grants, a technical assistance 
and marketing contract with the Resolution Trust Corporation and 
other miscellaneous receipts. 

The Corporation earned 3 percent less interest in FY 1992 than 
estimated because of lower investment balances. To allow 
NeighborWorks* organizations to begin housing initiatives, equity 
capital grants were disbursed from general revenue prior to the 
receipt of these specific funds from the U.S. Treasury. 

Other revenue was higher than anticipated because of the return of 
previously disbursed cjrant funds to NHSs. Over $140,000 was 
received from organizations once active in Tucson, Arizona ; 
Wilmington, North Carolina; Nashville, Tennessee; Chattanooga, 
Tennessee; Ft. Lauderdale, Florida; and Omaha, Nebraska. The 



lie 



357 



March 25, 1993 

T«nn«««««; rt . Lauderdale, Florida; and Omaha, Nebraska. The 
Corporation also recognized additional revenue of $83,000 in 
marketing and technical assistance fees from the Resolution Trust 
Corporation, S2 1,000 in profit sharing with its corporate travel 
agent, over $28,000 from other non-profits who collaborated on a 
survey of benefits provided to non-profit executives, $24,000 in 
donations and $5,000 in miscellaneous other sources. 

&«9istr«tion rees aad Doaatlons: 

FY 1992 FY 1992 Increase » 
ggXi»al;g Agtyal fOecreasel Change 

$ 215,000 $ 285,000 S 70,000 33* 

Fees are collected frots participants at training events and 
educational workshops sponsored by Neighborhood Reinvestaent. Due 
to a concerted effort to serve coHaunity-based organizations not 
affiliated with Neighborhood Reinvestaent , the Corporation 
collected additional fees from participants at training institutes 
and other additional training programs. Over 36,800 contact hours 
were provided to training participants, exceeding the goal of 
3 0,000 by 2 2 percent. 

Project Development Fees: 

FY 1992 FY 1992 Increase % 
Estimate Actual fPeereasel Change 

$ 314,000 $ 262,000 $ (52,000) -17* 

The Corporation receives funds from local governments and other 
entities to defray costs to develop new NeighborWorks* 
organizations and undertake special programs. Since Neighborhood 
Reinvestment serves as the fiscal agent for disbursement, these 
funds are generally restricted to costs of specific projects and do 
not defray general expenses of the Corporation. Such costs, which 
include compensation for development coordinators, office space, 
developmental workshops and grants, are subject to various timing 
factors difficult to predict. Several new FY 1992 starts, such as 
those in Pocatello, Idaho; Long Beach, California and Ponce, Puerto 
Rico were not begun until late in the year. 



117 



358 



March 25, 1993 

D«obllgation of Prior T«ar Grants: 

FY 1992 FY 1992 Increase % 
Egtiffiat? Actual (Decrease) Change 

$ $ 40,000 $ 40,000 N/A 

This category records deobligations of previously obligated grant 
funds. Grants are deobligated when the grantee is unable to 
fulfill the terms of the grant, often because of turnovers in key 
staff, a change in economic conditions or shifts in neighborhood 
priorities. The conditions and events that lead to deobligations 
could not be foreseen at the time the FY 1993 justification was 
prepared. FY 1992 deobligations consisted of prior-year grants to 
NeighborWorks* organizations in Houston, Texas; West Palm Beach, 
Florida; and Hudson, New York. A portion of a prior year grant to 
the California Neighborhood Housing Services Foundation was also 
deobligated. 

Cairry Forward Froa Previous Year: 

FY 1992 FY 1992 Increase % 
EfftiBat? A<?1;WJ»i fPecreasel Change 

$ 714,000 $ 714,000 $ 0% 

Though all anticipated sources of funds are budgeted to be 
obligated, some funds always remain at the end of each fiscal year. 
These funds are carried forward to fund activities in the next 
fiscal year. At the time the FY 1993 justification was prepared, 
the FY 1991 audit was complete and the unobligated carry forward 
available to fund FY 1992 activities had been determined. The 
unobligated carry forward from FY 1991 was the result of $178,000 
more-than-anticipated other receipts and $536,000 less-than- 
anticipated expenses, particularly for consultants and telephone 
service . 



118 



359 



March 25, 1993 



U8B8 or ALL BOURCB8 OT TPWDS; 



CoapMisation t 



FY 1992 

Estimate 

$ 11,720,000 



FY 1992 

$ 12,020,000 



Increase % 
^Decrease) Chance 



$ 300,000 



3% 



This category includes funds for gross salaries (including merit 
increases but no cost of living increases) , payroll taxes and 
employee Isenefits. The FY 1992 estimate assumed 220 FTEs (full- 
time equivalent employees) ; the actual FY 1992 FTE count was 221. 
FY 1992 compensation expenses were also higher because of a shift 
in the timing of all merit awards from January first of each year 
to the month in which the employee was hired. Because more 
anniversaries occur in the first two quarters of the fiscal year, 
the effect of the merits on the fiscal year compensation line was 
higher than estimated under prior merit award procedures. In 
addition, the value of accrued vacation increased by over $30,000 
since the prior year; this figure is not known prior to September 
30, 1992. 



Travel : 



FY 1992 

Estimate 



FY 1992 
Actual 



$ 1,664,000 $ 1,515,000 



Increase 
(Decreased 

$ (149,000) 



t 

Change 

-9% 



This expense category provides for travel and related expenses for 
employees and others conducting business on behalf of Neighborhood 
Reinvestment. Most air travel and hotel expenses derive from 
government-discounted rates negotiated by the General Services 
Administration. This expense was less than estimated due to a 
conscious effort to conduct only the most essential meetings and to 
provide only the most critical on-site technical assistance. Costs 
were also reduced by $21,600 through the redemption of frequent 
flier awards to purchase airline tickets for staff. 



119 



360 



March 25, 1993 

Prof«asioB«l S«rvio«s: 

FY 1992 FY 1992 Increase % 

EBtinate ACtWai f Decreased Change 

$ 1,440,000 $ 934,000 $ (506,000) -35% 

This category provides funds for professional service contract fees 
and expenses such as the annual corporate financial audit, payroll 
services and outside legal counsel. Slightly more than $190,000 of 
these savings were possible because of the cessation of the 
Advertising Council's campaign. Other savings stemmed from the 
implementation of new, stringent policies regarding proposals, bids 
and contractor selection that may have allowed the Corporation to 
secure better prices emd definitely delayed (or eliminated) certain 
contracts. Some fxinds originally budgeted under the professional 
services line were used instead to meet local needs through direct 
capacity-building grants to NeighborWorks* organizations. 

Conferences and Workshops: 

FY 1992 FY 1992 Increase % 
Efftiffifltg ActVial fPecrease^ Chance 

$ 490,000 $ 359,000 $ (131,000) -27* 

This line provides for expenses such as group meals, ground 
transportation, meeting rooms and registration fees incurred during 
events such as educational conferences, training workshops, program 
reviews and staff meetings. Group meal expenses were less than 
anticipated due to a conscious effort to limit them to modest 
offerings at only essential meetings. 

Oocupanoy: 

FY 1992 FY 1992 Increase % 
Egtimate Actual (Decrease) £tiaQ3S 

$ 1,579,000 $ 1,472,000 $ (107,000) -7% 

This line provides for rent and utilities for all Neighborhood 
Reinvestment offices. Escalations of operating and maintenance 
expenses on leased office space were less than anticipated. This 
was particularly true for the Washington D.C. office for which we 
received a one-time refund of over $41,000 for "pass-through" 
operating expenses previously paid. 



120 



361 



March 25, 1993 



other Operating Costs: 



FY 1992 FY 1992 Increase % 
Estiwatg AgtM^l fPecrease) Change 

$ 2,160,000 $ 2,203,000 $ 43,000 2% 

This expense line consists of various accounts related to office 
expenses: telephone, postage and delivery, printing and supplies, 
insurance, agency fees for temporary help, equipment rental and 
maintenance, publications, dues, subscriptions, classified 
advertising (primarily for recruitment), expendable property, 
purchases of fixed assets and miscellaneous other expenses. This 
expense category nominally increased due to a modest rise in 
prices, particularly in equipment rental and maintenance contracts. 



121 



362 



March 25, 1993 

Q8AMT p OKHflBSt 

TOTAL ORMITSi 

FY 1992 FY 1992 Increase * 
EStimatg ft'Ttu^^l rPecrease) Chance 

Core Grants $ 10,010,000 $ 10,475,000 $ 465, OOO 5t 
Equity Grants 5.000.000 4.213.000 f787.ooo^ -i6% 

TOTAL $ 15,010,000 $ 14,688,000 $ (322,000) - 2» 

FY 1992 grants totaled $14,688,000, which represents 44 percent of 
all FY 1992 sources of funds. The Corporation was able to meet 
additional grant demands in FY 1992 because of savings in operating 
expenses, additional receipts from training registration fees and 
other revenue. All grants are in response to specific requests 
from NeighborWorks* organizations, so the precise distribution of 
grants among categories is never certain until fiscal year end. 
Each grant category is discussed below. 

Creation of Hew MeighborWorks* OrganiBatioas: 

FY 1992 FY 1992 Increase % 
E?t4mat^ Actual (Decrease) Change 

$ 1,200,000 $ 1,382,000 $ 182,000 15% 

This grant category provides revolving loan funds and grant 
commitments to newly organized NeighborWorks* orgemizations and 
Mutual Housing Associations. This increase funded additional 
grants for two newly created Mutual Housing Associations. 

Organisational Expansion: 

FY 1992 FY 1992 Increase % 
E stimate A<rt;Mal fPecrease^ Change 

$ 1,768,000 $ 2,039,000 $ 271,000 15* 

This line provides grants to cover the costs of geographical 
expansions, operating costs of NHSs undergoing major redevelopments 
or dissolutions and efforts to increase the capacity of existing 
NeighborWorks* organizations. This increase permitted additional 
capacity-building grants. 



122 



363 



March 25, 1993 

Prasarvlng Affordabla Housing: 

FY 1992 FY 1992 Increase % 
EStiBfltS Actual (Decrease! Change 

$ 1,740,000 $ 1,750,000 $ 10,000 1% 

This category provides grants for the rehabilitation of existing 
structures and the construction of new housing by NelghborWorks* 
organizations . 

Training t Informing: 

FY 1992 FY 1992 Increase % 
EStiiaatg AgtV<al (Decreased Change 

$ 830, 00& $ 819,000 $ (11,000) -1% 

This line provides grants to cover expenses related to training 
events, grants to organizations to conduct ongoing research and to 
replicate new neighborhood strategies and neighborhood preservation 
projects. 

BBCOHDARY MARKET ACTIVITIgSS 

In FY 1992, this category included three inter-related, mutually 
dependent grants. 

MHSA Adalaistrativ* Grant: 

FY 1992 FY 1992 Increase % 
Egtimatg AgtVial fPecreasel Change 

$ 2,340,000 $ 2,340,000 $ 0% 

This grant eovers the costs of servicing the existing secondary 
market portfolio, purchasing loans and developing additional social 
investments. This grant also provides funds to continue the 
development and implementation of an integrated financial 
management system for Neighbor Works* organizations involved in the 
secondary market and provides for the delivery of fund-raising 
assistance in special situations. 



123 



364 



March 25, 1993 

BH8A Capital arant: 

FY 1992 FY 1992 Increase % 
Estimate Actual fPecreasel Change 

$ 1,092,000 $ 1,192,000 $ 100,000 9% 

This grant to NHSA provides funds to purchase NeighborWorlcsO 
network loan portfolios, cover security interest subsidies and meet 
reserve requirements. This grant was increased to meet reserve 
requirements to enable NHSA to exceed their FY 1992 goals for 
secondary market purchases. 

Capital To Aooess Secondary Market: 

FY 1992 FY 1992 Increase % 
Estimate Actual f Decrease) Change 

$ 1,040,000 $ 953,000 $ (87,000) -8% 

These grants are awarded to NeighborWorks* organizations to meet 
NHSA's requirements for secondary market participation. Grant 
funds may be used for pre-development, acquisition or equity 
purposes including recapitalization of revolving loan fvinds. 

Equity Capital: 

FY 1992 FY 1992 Increase % 
Estimate Actual (Decrease) Change 

$ 5,000,000 $ 4,213,000 ($ 787,000) -16% 

This category provides equity capital grants funded from the 
additional $5 million appropriation authorized in FY 1992 to 
finance rehabilitation loans and lower- to moderate- income housing. 
All but $787,000 was obligated in FY 1992; the remainder will be 
obligated in FY 1993. 



124 



365 



APPBHDICBB 



N. Public Law 95-557 

O. NeighborWorks* Service Activities 

P. Active NeighborWorksO Organizations 

Q. NeighborWorks* Operating Expenses - FY 1991 

R. Equity Grant Highlights 

S. HOME and HOPE Surveys 

T. Collaboration with the Surdna Foundation 

U. Financial Management Systems Work Plan 

V. Training Institute & Executive Director Training Agendas 

W. National Employee Benefits Consortium Survey 

X. NeighborWorks* Executive Director Transition: 1991-1992 

Y. FY 1992 Audit 

Z. Organizational Chart and Classification/Compensation Plan 



366 



PUBUC LAW 95-557— OCT. 31. 1978 



HOUSING AND COMMUNITY 

DEVELOPMENT AMENDMENTS 

OF 1978 



n-ut o-nxt* 



367 



PUBUC LAW 9S-S57— OCT. 31. 1978 

TITLE VI— NEIGHBORHOOD REINVESTMENT 
CORPORATION 

tBOWt TTTLZ 



92 STAT. 2115 

RtuiTWmtQt 
Cofpomio* Act 



Sic. 601. This titi* may be cited u the "Neighborhood Reinvestment « USC 8101 
Corporation Act". oou. 

rcrBcros a^H) rtTsrom 

Sac 602. (a) The Congreo Ends that— 42 USC 8101. 

(1) ^« neighborhood housing services demonstration ot the 
Urban Reinvestment Task Force has proven its worth as a success- 
ful program to revitalize older urban neighborhoods by mobiliz- 
ing public, private, and community resources at the neighborhood 
level; and 

(2) the demand for nei^liborhood housing services programs in 
cities throughout the Umted Sutes warrants the creation of a 

fublic corporation to institutionalize and expand the neighbor- 
ood housing services program and other programs of the present 
Urban Reinvestment Task Force, 
(b^ The purpose of this title is to establish a public corporation 
which will contuine the joint etforts of the Federal financial supervi- 
sory agencies and the Department of Housing and Urban Development 
to promote reinvestment m older neighborhoods by local financial insti- 
tutions working cooperatively with community people and local gov- 
ernment, and which will continue the nonbureaucratic approach of the 
Urban Reinvestment Task Force, relying largely on local initiative for 
the specific design of local programs. 

TMtkMuamtrsT or coooiATioir , 

Sic. 80a. (a) Ther* is established a National Neighborhood Rein- « USC 8102. 
vetment Corporation (hereinafter referred to as the "corporation") 
which shall be a body corporate and shall possess the powers, and shaU 
be subject to the direction and limitations specified herein. 

(b) The corporation shall implement andexpand the demonstration Ouia. 
activities carried out by the Urtwn Reinvestment Task Force. 

(c) The corporation shall maintain its principal office in the District Offiot 
01 Columbia or at such other place the corporation may from time to 

time prescribe. 

(d) The corporation, including its franchise, activities, assets, and 
income, shall be exempt from all taxation now or hereafter imposed by 
tha United States, by any territorv, dependency, or possession thereof, 
or by any State, county, mtinicipalitv, or local taxing authonty, except 
that any real property of the corobration shall be subject to State, 
temtorial, county, manieipal, or local taxation to the sama extent 
according to its vain* as other real property is taxed. 

MM>D or DISZCTOBS; ZSTASLZSII^Brr 

Sfc 80i. (a) The corporation shall be under the direction of a board MobmUp. 
01 directors made up of the following members: 42 USC 8103. 

(1) tha Chairman of the Federal Home Loan Bank Board- 
(9) tha Secratary of Housing and Urban Development : 
(8) a member of the Board of Governors of tha Federal 
Bsayrre System, to be designated by the Chairmaa of tha Board 
of Governors of tha Federal Raserve System ; 



368 



92 STAT. 2116 



PUBUC LAW 9S-557— OCT. 31. 1978 



(4) the Ouirm&n of the Federal Deposit Insurance Corpo- 
ration; 

(5) the Comptroller of the Currency ; and 

(6) the Administrator of the Xationil Credit Union 
Administration. 

Oni r nun (b) The Board shall elect from among its members a chairman who 

shall se^^-e for a term of tiro years, except that the Chairman nf the 

Federal Home Loan Bank Board shall serve as Chairman of the Board 

of Directors for the first such trro-year term. 

Coapoutioa (c) Each director of the corporation shall s«^^'e ex officio during 

ud apraao. the period he holds the office to which he is appointed by the President. 

(a) The directors of the corporation, as full-time officers of the 
United States, shall sen-e without additional compensation but shall 
b* reimbursed for travel, subsistence, and other necessary expenses 
incurred in the performance of their duties as directors of the 
corporation. 

(e) Tlie directors of the corporation shall adopt such bylaws, 
IMiieies, and administrative provisions as are necessary to the func- 
tioning of the corporation and consistent with the provisions of this 
title. 
Qoana. (f) The presence of a majority of the board members shall con- 

stitute a quorum. 

(g) The corporation shall be subject to the provisions of section 
SS3 of title 3. Lnitetl States Code. 

(h) All meetings of the board of directors will b« conducted in 
accordance with the provisions of section S3-2b of title 9, United States 
Code. 

omcots jkXi> rytrutToa 

42 use 8104. Szc. 603. (a) The board shall have power to select, employ, and fis 

the compensation and benefits of such officers, employees, attorney's, and 
agents as shall be necessary for the performance of its duties under 
t£ia title, withont regard to the provisions of title 3, United States 
Code, governing appomtments in tLe competitive service, classification, 
and General Schedule pay rates, except that no officer, employee, attor- 
ney, or agent of the corporation ma^ be paid compensation at a 
rate in excess of the highest rate provided for GS-18 of the General 
Schedule under section 3332 of title 3. United States Code. 

(b) The directors of the corporation shall appoint an executive 
director who shall serve as chief executive officer of the corporation. 

(e) Tha azeeotive director of the corporation, subject to approval 
bj the board, may appoint and remove such employees of the corpora- 
tion as he determines necessary to carry out the purposes ot the 
corporation. 

(d) No political test or political qualification shall be used in select- 
ing, appointing, promoting, or taking any other personnel action with 
respect to any officer, agent, or employee of the corporation or of any 
recipient, or in selecting or monitoring any grantee, contractor, or per- 
son or entity receiving financial assistance under this title. 

(e) Officers and employees of the corporation shall not be considered 
offlean or emplovees of the United States, and the corporation shall 
not b* considered a department, agency, or instrumentality of the Fed- 
eral Government. The corporation shall be subject to administrative 
and cost standards issued by the Office of Management and Budget 
similar to standards applicable to non-profit grantees and educational 
institationa. 



369 



PUBUC LAW 9S-SS7— OCT. 31. 1978 



92 STAT. 2117 



AND DCTIU 

Sic 606. (k)(l) The corporation shall continue the vrorlc of the 
Urban Reinrestment Task Force in establishing neighborhood hom- 
ing services programs in neighborhoods throughout the United States, 
supemsing their progress, and providing them with grants and tech- 
nical assistance. For the purpoM of this paragraph, a neighborhood 
housing services program may involve a partnership of neighborhood 
residents and representatives of local governmental and financial insti- 
tutions, organized as a State<hartered non-profit corporation, worlc- 
ing to bring about reinvestment in one or more neighborhoods through 
R program of s>'3tematic housing inspections, increased public invest- 
ment, increased private lending, increased resident investment, and a 
nvolving loan fund to make loans available at flexible rates ai\d terms 
to homeowners not meeting private lending criteria. 

(2) The corporation shall continue the work of the Urban Reinvest- 
ment Task force in identifying, monitoring, evaluating, and providing 
grants and technical assistance to selected neighborhood preservation 
projects which show promise as mechanisms for reversing neighbor- 
hood decline and improving the quality of neighborhood life. 

(3) The corporation shall experimentally replicate neighborhood 
preservation proiecta which have demonstrated success, and after creat- 
ing reliable developmental processes, bring the new programs to neigh- 
borhoods throughout the Lnited States which in the judgment of the 
corporation can beneKt therefrom, by providing assistance in orga- 
nizing programs, providing grants in partial support of program costs, 
and providing technical assistance to ongoing programs. 

(4) The corporation shall continue the work of the Urban Reinvest- 
ment Task Force in supporting Xeighborhood Housing Services of 
America, a nonprofit corporation established to provide services to 
local neighborhood housing serWces programs, with support which 
may include technical assistance and grants to expand its national loan 

?archase pool and may contract with it for services which it can per- 
orm more efficientljr or effectively than the corporation. 

(5) The corporation shall, in making and providing the foregoing 
grants and technical and other assistance, determine the reporting arid 
management restrictions or requirements with which the recipients of 
such grants or other assistance must comply. In making such deter- 
minations, the corporation shall assure that recipients of grants and 
other ossistonoe make available to the corportion such information as 
may be necessary to deremiine compliance with applicable Federal 
laws. 

(b) To carry out the foregoing purposes and engage in the forego- 
ing activities, the corporation is autnorized — 

(1) to adopt, alter, and use a corporate seal : 

(2) to have succession until dissolved by -Vet of Congress; 

(3) to make and perform contracts, agreements, and 
commitments; 

(4) to sue and be sued, complain and defend, in any State, Fed- 
eral, or other eoort; 

(3) to determine its necessary expenditures and the manner in 
which the same shall be incurred, allowed, and paid, and appoint, 
employ, and fix and provide for the compensation of consultants, 
without regard to any other law, except as provided in section 
608(d); 

(6) to settle, adjust, and compromise, and with or without com- 
pensation or benefit to the corporation to release or waive in whole 



Houtinf Mrvien 
proframi, 
continuation. 
42 use 8I0S 



ProMrviuoa 
projccta. 



370 



92 STAT. 2118 



PUBUC UW 95-SS7— OCT. 31, 1978 



fnilitiw. 



or in part, in advance or othenrise, any claim, demand, or right 
of, by, or against Che corporation ; 

(7) to invest such funds of ihe corporation in such investments 
as the board of directors may prescribe ; 

(8) to acquire, take, hold, and own, and to deal with and dispose 
of any property ; and 

(9) to eiercise all other powers that are necessary and proper to 
carry out the purposes of this title. 

(c)(1) The corporation may contract with the Office of Xeighbor- 
liood Reinvestment of the Federal home loan banks for all staff, serv- 
ices, facilities, and equipment now or in the future furnished by the 
Office of Xeishborhood Reinvestment to the Urban Reinvestment Task 
Force, includine receiving the service* of the Director of the Office of 
Xeidhborhood Reinvestment as the corporation's executive director. 

(2) The corporation shiill have the power to award contracts and 
grants to— 

(A) neighborhood liousinj( sen-ices corporations and otlier noti- 
profit corporations engaged m neighborhood preservation activi- 
ties; and 

(B) local governmental bodies. 

(3) The Secretary of Housing iind Urban Development, the Federal 
Home Loan Bank Board and the Federal home loan banks, the Board 
of Governors of the Federal Reserve Svstem and the Federal Reserve 
banks, the Federal Deposit Insurance Corporation, and the Comptrol- 
ler of the Currency, the Xational Credit Union .-Vdministrntion or 
any other department, agency, or other instrumentality of the Federal 
G<mmment are authonzed to provide services and facilities, with or 
without reimbursement, necessar)- to achieve the objectives and to 
carry out the purposes of this title. 

(a) (1) The corporation shall have no power to issue any shares of 
stocks, or to declare or pay any dividends. ' 

(2) No part of the mcome or assets of the corporation shall inure 
to the benefit of any director, officer, or employee, eicept as reasonable 
compensation for services or reimbursement for expenses. 

(3) The corporation may not contribute to or otherwise support any 
political party or candidate for elective public office. 



RiTons AXO ACnrrs 



TfiBimiitil to 
Pr«ud«al aad 



«2 use 8106. 



Sec. 807. (a) The corporation shall publish an annual report which 
shall be transmitted by the corporation to the President and the 
Congress. 

(b) The accounts of the corporation shall be audited annuallv. Such 
audits shall be conducted in accordance with cenerally accepted audit- 
ing standards by independent certified public accountants who are 
certified bv a regulatory authority of the jurisdiction in which the audit 
is ondertaken. 

(e) In addition to the annual audit, the financial transactions of the 
corporation for any fiscal year during which Federal funds are avail- 
able to finance any portion of its operations may be audited by the 
General .V.ccountit\g Office in accordance with such rules and regula- 
tions as may be prescribed by the Comptroller General of the United 
Ststcs. The financial transactions of the corporation shall be audited 
by the General Accounting Office at least once during each three years. 

(d) For any fiscal year during which Federal funds are available 
to Anance any portion of the corporation's grants or contracts, the 
0«n(nl Accoiintins Office, in accordance with such rules and resula- 
tions as may be prescribed by the Comptroller General of the United 
States, may audit the grantees or contractors of the corporation. 



371 



PUBUC LAW 9S-5S7— OCT. 31. 1978 



92 STAT. 2119 



(•) Th» corporation ih»Il conduct or require each |{rant«« or con- 
Cnctor to provide for ui annual financial audit. The report of each 
SQch audit ihail b« maintained for a pariod ot at least fire yttn at thi 
principal offlc* of tha corporation. 

ACTHOnzATioir 

Sec. 608. (a) Then are authorized to b« appropriated to the corpo- 
ntioa to carry out this title not to exceed $12,200,000 for fiscal year 
1979. 

(b) Fonda appropriated pursuant to this section shall remain arail- 
able until arpended. 

(e) Xon-rederal funds receired by the coriMiration, and funds 
receired by any recipient from a source other cnan the corporation, 
shall ba accounted lor and reported as receipts and disbursements 
separate and distinct from Federal funds. 

(d) The corporation shall prepare annually a business-type budget 
which shall be submitted to the Office of Management and Budget, 
under such rules and regulations as the President may establish as to 
the data of submission, the form and content, the classifications of 
data, and the manner in which such budget program shall be prepared 
and presented. The budget of the corporation as modified, amended, 
or revised by the President shall be transmitted to the Conj^ress as a 
part of the annual budget required by the Budget and Accounting 
Act, 192L Amendments to the annual budget program may b« sub- 
mitted from time to time. 



Appfoprui 
iaihora«6o«. 
«Z use 8107. 



Aaoiul budgtt 
sabmiiul. 



Traumioal to 
CoagrtM, 

31 use 1. 



HOUSING AND COMMUNITY 
DEVELOPMENT ACT OF 1980 



PUBUC LAW 9«-399— OCT. 8. 1980 



94 STAT. 164S 



NocHaoaiiooa aciHvcfTMcivT coBroa*noN 

Sec. .115. Tille VI of ih* Housing and Caniniunilr Development 
AmendRicntt of 19711 is amended— 

1 1 1 br uriking out "National' in icrtion MSat; a USr ftmt 

lit by sinking out "supervising" in the first sentence of section 
SOnaa 1 1 and lOMrting in lieu thereof the word "monitoring": and « totr aiaa 
,Jil?T ••rik'ni out -and not to exceed S12.000.000 for fiscal veor 
l!»0^ la section SO«(a> and inawtini in lim th«r«>f the followinr « "*" "'« 
.rf. -TIST' *'2-*»0«> for nacalyear 1980. and not to eaceed 
SI3.4».aaO for (beal jear Itsr 



372 



GARN-ST GERMAIN DEPOSITORY 
INSTITUTIONS ACT OF 1982. 



96 STAT. 15^4 PUBLIC LAW 97.320— OCT. 15. 1982 

NimilVOHItOOO ll£IK\'C.VT>4r.NTI'IMIPn RATION 

4SU8Ctl03 Sxr. 710. t*> Section 604 of th« Noghhorhnod K*inTc*uneni Corp-irstion Art 
(Publk Uw 95-UT) ik amended— 

ip hy rtd««ixn*l>ng subwctioni lO. •)(>, and 'h* is subscclinnA 'g). ihi. 
and (It. rtsp«clivtl7. snU bjr iruriiing aAei fubscclion !«• tht rolluwing: 

~'0 A dircclor who i« n*ciwtarilr ubient Trom ■ mevling of U«c board, or 
of a cwnmillrt *>( lh« board, may pariicipala m fuch mr**in| OirougK a 
July daaignatrd riprfs«nialiv« who is ii«rTing. pursuant to appomtmcni by 
tho PrtJidtnl of th« United Slatca. b) and with (he iidvicf and conMnl of 
th«Senalt, in Ihtiamr d«>partm«nt. agtnry. corporation. ?rinatrumffnl alii v 
aa th« aba«nl director, or tn the raM *»f the C«Mnpiro)ler of the Currrncy, 
throui|h a duly deaiKnaicd Deputy Compiroller ': and 

l3t by insertinf in «*clli>n 61M(gi. as rrdesivnatrd. alter 'mcmbe'^' a 
c*mm« and lh« word* 'or their repreMntativra aa provifM in subMftion 
•ft.*. 
4J t.*9C kitM tbi Section 6Uihc)i3i oi* »uch Act is amended bv inaemnf ' fuiida." aller 

'pmeid**. 

HOUSING AND COMMUNITY 
* DEVELOPMENT ACT OF 1987 

101 STAT. 1938 PUBLIC LAW 100-242— FEB. 5. 1988 

SXC SM. NtlCHaORIIOOO KCINVCSTMCIT CORPORATION. 

(■I COMrosmOH or Boau — S<ctian 604 of tht Nnghborhood 
tt U9C IIOJ- IUin»wlm^nl Corporation Act is imendtd— 

(t) by inMrting bcfor* lh« semicolon in aubMCtion (aXl) lh« 
followihg: "or • membor of iho Federal Homt Loan Bank Board 
to b« deiignated by tha Chairman"; 

(2) by stnkini out suboaction laXS) and inserting in liau 
tharaof Iha followlnr "13) tha Chairman of tht Board of &W- 

■ aimon of tht Fedtraf Rtstrvt Sysum. or a mtmbtr of tha Board 
of Co'tmon of tha Ftdtral Rtservt System to be dcsi|natad br 
tha Chairman;"; 

(3) by inserting before the semicolon in subsection (aX4) the 
followinr "or the appointive member of the Board of Directors 
of the Federal Depoeit Insurance Corporstion i/ so designated by 
the Chairman", and 

14) by sinking out "Administrator" in lubaection leKS) and 
inserting in lieu thereof the word "Chairmen"; and by inserting 
after "Administrstion" the followinr "or a member of the 
Board of the Notional Credit Union Adminiitntion la be des- 
ignaied by the Chairman.". - 



373 



CRANSTON-GONZALEZ NATIONAL 
AFFORDABLE HOUSING ACT 

PUBLIC LAW 101- 625 -OCT. 25. 1990 ^ 104 STAT. 4079 

SEC. 917. NEIGHBORHOOD REINVESTMENT CORPORA TION 42 USC. 8 107 

(e) AxrrmouxATtON or ArraofniATiONS.— Section SOSfaJ of tKt 
Neighborhood Rtinutttment Corporation Act (it US.C 8107(a)) it 
amtndtd to read at follow: 

'^aXV There are authorized to be appropriated to the corporation 
to 'carry out thit title S3S.0OO.0O6 for fiscal year 1991 and 
t3S.SOO.000 for fiscal year 199S. ffot more than IS percent of any 
amount appropriated under thu paragraph for any fitcal year may 
be utedfor atuninittrative expentes. 

"(!) Of the amount appropnaled purtuant to thit lubeection for 
each of the fitcal years 1991 and 199!. amountt appropnattd in 
exeett of tKt'.amount necessary to continue exitting teruicet of the 
Neighborhood ■ Reinvettment Corporation in revitalizing declining 
neighborhoodt shall be available — 

"(A/ to expand the national neighborhood homing services 
network ana to attitt network capacity development, including 
expansion of rental housing resources; 

"fBJ to expand the loan purchase capacity of the national 
neighborhood houtmg services secondary market operated by 
Neighborhood Housing Strviccs of America; 

"rO to make grants to provide incentives to extend lout- 
income housing use in connection with properties subject to pre- 
payment pursuant to the Low-Income Houtmg Preservation and 
Resident Ownership Act of 1990; 

"(D) to increase the resources available to the national neigh- 
borhood housing services network programs for the purchase of 
multifamily and single-family properties owned by the Secretary 
of Housing and Urwin Development for rehabilitation (if necet- 
saryland tale to lour- and moderate-income families; ana 

'tE) to preoide matching capital grants, operating subsidies, 
and technical services to mutual housing associations for the 
development, acquisition, and rehabilitation of multifamily 
and single-family properties (including properties owned by the 
Secretary of Housing and Urban Development) to insure afford- 
ability by lour- and moderate-income families. ". 



374 



SERVICE ACTIVITIES 
PROVIDED BY NWOS IN 1991 





fofNWOs 


%ofNWOs 




(0 - 155) 


(n-155) 




119 




iMarketuig and Neighborhood Promotion 




Home Improvement (Int & Ext) 


77 % 


Clean-up Projects 


97 


63 % 


Landscape/Neigh Beautification 


81 


52 % 


Neigh Safety & Awareness 


81 


52 % 


Neighborhood Marketing 


99 


64 % 


Neighborhood Festivals 


70 


45 % 


Realtor Involvement 


97 

37 


63 % 


Financial Subsidy Programs 




Interest Subsidy Program 


24 % 


Tandem Lending 


64 


41 % 


Downpayment Assistance 


58 


37 % 


Section 8 


35 


23 % 


City and State Grants 


96 


62 % 


NHS Grants 


56 


36 % 


Deferred Mortgage 


57 


37 % 


Fanners Home Loans 


1 


1 % 


Loan Sales to Banks 


15 


10 % 


Subordinated Rehab Lending 


60 


39 % 


Other Financial Program 


2 


1 % 


City Loan Program 


1 
32 


1 % 


Special Housing Projects 




Demolition 


21 % 


Handyman Referrals 


89 


57 % 


Housing for Homeless 


24 


15 % 


Housing for Senior Citizens- 


35 


23 % 


Housing for Handicapped 


2 


1 % 


Relocation/ Housing Moving 


22 


14 % 


Rehab Outside NHS Area 


48 


31 % 



375 



SERVICE ACTIVITIES 
PROVIDED BY NWOS IN 1991 





f ofNWOs 


% ofNWOs 




(n - 155) 


(n - 155) 


Nat'l Trust for Hist. Preservation 


20 


13 % 


Mixed Residential/Commercial Bldgs 


22 


14 % 


Adaptive Re-use 


12 


8 % 


Urban Homesteading 


13 


8 % 


Disposition of Foreclosed Property 


56 


36 % 


Other Special Housing Projects 


1 


1 % 


Mini Repair ProgramAVorkshop 


2 


1 % 


Technical Asst. Program 


1 
5 


1 % 


Neighborhood Special Help Projects 




Elder American Nutrition Program 


3 % 


Food Bank 


12 


8 % 


Buying Cooperatives 


6 


4 % 


Elderly Tax Information 


19 


12 % 


Arts and Culture 


1 


1 % 


Youth Employment Project 


37 


24 % 


Lead Poison Prevention 


47 


30 % 


Drug/ Alcohol Prevention 


25 


16 % 


Community Health Services 


12 


8 % 


Crime Prevention 


1 


1 % 


Other Special Projects 


2 

1 


1 % 


Education and Training Programs 




Money Management 


1 % 


Leadership Training 


64 


41 % 


Job Training 


34 


22 % 


Neighborhood Schools 


30 


19 % 


Foreclosure Prevention Training 


29 


19 % 


Property Management Training 


33 


21 % 


Computer Education 


28 


18 % 


Other Education/Training Programs 


3 


2 % 



376 



SERVICE ACTIVmES 
PROVIDED BY NWOS IN 1991 





f ofNWOs 


% ofNWOs 




(n- 


■155) 


(n- 


■155) 






87 






Miscellaneous 




Code Enforcement 


56 % 


Zoning Changes 




48 




31 % 


Neighborhood Expansion 




40 




26 % 


Tool Lending Library 




26 




17 % 


Neighborhood Inventory 




2 




1 % 


Data Collection Projects 




2 




1 % 


Government Relations 




1 




1 % 


Business/Merchant Relations 




75 




48 % 


Community Organizations Relations 




117 




75 % 


College Partnership Program 




1 




1 % 


Miscellaneous 




4 




3 % 



Source: Annual Survey 1991 



Research & Information Services 
October 29, 1992 



377 



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378 



NEIGHBORWORKS ORGANIZATIONS 
PERCENTILE GROUPING FOR OPERATING EXPENSES 
1991 ANNUAL SURVEY 





$ OPERATING 


NUMBER 


QUARTILE 


EXPENSE RANGE 


OFNWOs 


1st Quartile 


16.866 ♦ to 92,595 


38 


2nd Quartile 


92.617 to 148.188 


38 


3rd Quartile 


148.500 to 217.344 


38 


4th Quartile 


227.383 to 3.269.489 *• 


152 



Median Operating Expense = $148,500 



• Fl Pierce NHS (sttff size » 2; Inacdve/in tnuisidoa for most pirt of the year) 
** There are 10 NWOs with operating expenses more than $500,000; and S NWOs 
with Operating expenses more than $1 million. 



Rtseaicb A Ittfonnadaa Services 
March 10. 1993 



379 
EQUITY GRANT HIGHLIGHTS 



Kalamazoo NHS, Inc. 

The Kalamazoo NHS, Inc. used Iheir equity capital grant to create new homeownership opportunities. 
The $80,000 award became a part of a $750,000 second mortgage fund which will leverage $5 
million in first mortgage dollars. This is the largest of three HOME ownership promotion programs 
implemented by the NHS, and the first with 100% participation of the local lending Institutions. The 
program will create 150 - 175 first-time homebuyers. 

New Haven NHS 

The $85,000 grant to the New Haven NHS (NHNHS) is a good example of a NeighborWorks® 
Organization using Neighborhood Reinvestment Equity Capital funds. The NHNHS is using the funds 
to provide cost write downs and/or down payment/dosing cost assistance to low/moderate income 
hometxjyers In their target neighborhoods. The properties that are t>eing targeted for this effort are 
abandoned tax and bank foreclosed property in New Haven that contribute to blight and crime. The 
NHNHS is currently using the NHSA/Worid Savings first mortgage program to provide first mortgage 
financing to the homebuyers. The progrsun is expected to provide assistance to 35 homebuyers. 

Kankakee NHS, Inc. 

The $28,000 pre-development grant to Kankakee (Illinois) NHS from Neighborhood Reinvestment 
Corporation is the seed for rehatMlitation of 60 units of muiti family, migrant farm worker, housing in 
Kankakee, Illinois. The Neighborhood Reinvestment grant will attract additional pre-development 
funds from the State of Illinois and will help secure approximately $2,000,000 In permanent financing 
from the Farmers Home Administration. This project includes the acquisition (by NHS) and 
rehabilitation of three dilapidated buikjings that are grossly overcrowded. When completed this 
project will represent the first multi- family rehabilitation project Feumers Home has completed in 
Illinois, and one of very few projects completed nationally. Funding commitments are expected to 
be secured by Fall 1993. 

New York aty NHS, Inc. 

This project is an excellent example of NHS's ability to achieve affordable housing production by 
lending to other non-profits. Through this Neighborhood Reinvestment grant, the New York City NHS 
has committed a total of $190,000 at 1% for 20 years to two low income, limited equity cooperatives 
which had t>een unable to find affordable financing. Because of the high real estate and construction 
prices In NYC, projects geared to lower income families need deep sut>sidies to make them 
affordable. 

In this instance, the 18 families involved have househoM Incomes ranging from slightly below 50% 
to 80% of median income. The units are large, with 2-3 tiedrooms; a ground floor apartment In each 
building is earmariced for disabled homeless families (waiting lists already are full). Families waiting 
for the units live within 1-2 blocks of the buikjings and are primarily Latinas, attracted to the large 
units. 

Neighbortiood Reinvestment's ec^ity grant positioned New Yoric City NHS as a lender to owners of 
small buikjings (which in NY means bulkfings with fewer than 20 units). Sut>sequent to this, a fund 
was established through the NHS by a consortium of banks. 



380 



Sacramento MHA 

Ground has been broken for the construction of the 44-unit Nonvood Estates Mutual Housing 
development project This first new construction MHA project will provide pennanent affordable 
housing in the Del Paso Heights neightiorhood of North Sacramento Catifomia. 

The $3.2 million project was developed with strong support from the City and County of Sacramento 
with a $1 80.000 Equity Capital grant from Neighborhood Reinvestment. The project will have six two 
story buildings, which will include 20 two bedroom, one bath units; 20 three bedroom, two bath units; 
and 4 four bedroom, two bath units. It will also include a complete community/laundry building with 
facilities. 

The innovative financing included the use of low-income housing tax credits. 

Dimmit County NHS 

An Equity Capital Grant of $150,000 was made to Dimmit County NHS of the purpose of leveraging 
an additional $480,000 in private and public sector monies to implement a New Construction 
Homeownership Project. The project features the construction of 20 single-family detached units 
build over an 18 month period with a recapture of funds through secondary market commitments. 

The program is targeted towards low-moderate income home buyers and builds in extensive pre- 
purchase counselling and ongoing monitoring during a 12 month lease period prior to closing of 
individual mortgage loans. Negotiations are currently undenway for site control eind subdivision work. 

Savannah NHS 

The Savannah NHS, in conjunction with the auction company of Hudson and Marshall, conducts 
auctions of RTC properties and other govemment-owned properties for pre-quaiified potential 
homeowners. As a tool to quality the potential applicants and make the effort affordable, the 
Savannah NHS provkjes down-payment assistance to the applicants utilizing an $87,500 Equity 
Capital grant. This effort bolsters the work of the NHS's Homebuyers' Club which has over 100 
members. 



381 



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March 25, 1993 

HBZOHBORHOOD RBINVZSTMEMT and tha SURONA POOMDATION 
COLLABORATIVE NSIOHBORHOOD STRATEQIC PLAMNINO 

In FY 1992, Neighborhood Reinvestment received $114,000 from the 
Surdna Foundation to fund six grants to NeighborWorks® 
organizations totaling $102,000. In FY 1993, the Corporation has 
asked the Surdna Foundation for a phase II grant of $285,000 to 
fund implementation grants to three organizations. It is expected 
that Surdna will be asked to fund grants of up to $75,000 to these 
three organizations in FY 1994. 

Seventeen NeighborWorks* organizations submitted concept papers 
regarding comprehensive, strategic planning. These papers included 
information regarding their past planning efforts; their current 
collaborative efforts; and their proposed outcomes for a 
neighborhood revitalization strategy. Neighborhood Reinvestment 
staff evaluated these proposals and chose nine organizations to 
attend a training workshop on collaborative strategic planning. 
Each of the nine organizations selected to attend the workshop met 
a high standard of organizational and financial stability. They 
all possessed the necessary staff and board capacity to take on 
such a project. The concept papers were evaluated on the clarity 
of the organization's stated goals and the ability to leverage 
resources, with special emphasis on previous experience in 
collaborative efforts and strategic planning. 

Based on these criteria, nine organizations were invited to attend 
a two and one-half day training workshop on collaborative strategic 
planning in Boulder, Colorado in March of 1992. Each organization 
was asked to send its executive director, one volunteer who would 
be significantly involved in the planning process and a third 
participant at their expense, if desired. Neighborhood 
Reinvestment staff and a representative from the Surdna Foundation 
also attended. This workshop increased the participants' 
understanding of collaborative strategic planning, reviewed goal- 
setting tools and suggested processes for planning. 

The nine organizations at the workshop submitted proposals for 
planning c^rants of $17,000 each that would assist the neighborhoods 
to develop a collaborative strategic plan for neighborhood 
revitalization. The proposals included a description of the 
process the neighborhood would use to produce a collaborative 
strategic plan. The proposals were rated and the following six 
organizations received planning grants: Dimmit County, Texas; Salt 
Lake City, Utah; South Bend, Indiana; New Britain, Connecticut; 
Kensington-Bailey (Buffalo) , New York and Beloit, Wisconsin. 



394 



March 25, 1993 



The resulting six plans were evaluated; three were selected for 
recommendation to the Surdna Foundation for implementation fundinq. 
The following criteria were used to rate the proposals: clarity of 
vision, significance of issues to be addressed, level of 
involvement of residents, commitment and diversity of stakeholders 
specificity of action plan, ability to leverage resources and the 
capacity of the organization (or collaborative group of 
organizations) to carry out the plan. 

Based on these criteria, the following three organizations are 
being recommended to the Surdna Foundation to receive $90,000 in FY 
1993 to assist them in implementing their collaborative strategic 
plans during year one: Dimmit County, South Bend and Beloit. This 
represented no more than 90 percent of the implementation budget of 
each of these organizations. Neighborhood Reinvestment will 
continue working with the three organizations who were not selected 
for recommendation for Surdna funding at this time to help them 
Identify other funding opportunities. 

Funding for years two and three of the implementation phase would 
be based on the progress and accomplishments made during year one 
During Phase II, Neighborhood Reinvestment will document the 
process of the three collaborations and will disseminate lessons 
learned from these efforts to the rest of our network and other 
non-profits through a variety of means including our Training 
Institutes and our publications. We are asking the Surdna 
Foundation for $15,000 to support these efforts. 

In FY 1994, strategic plans will be implemented and refined, as 
necessary, and the results will be periodically assessed so that 
needed modifications could be made. The organizations will submit 
reports to Neighborhood Reinvestment on the progress of the 
collaboration and will receive technical assistance from our field 
staff as needed. 



395 



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401 



Employee Benefits 
in Community-Based 
Beveiopment Brganizations: 
ne Effect on Employee 
Recruitment and Retention 



Final Report 



A study conducted for: 

Center for Community Change 
Development Training institute 
Enterprise Foundation 
Locai Initiatives Support Corporation 
National Council of La Raza 
National Congress for Community 

Economic Development 
Neighborhood Reinvestment Corporation 



Conducted by: 

David Kams, Audience Concepts 

Emile SchofFelen, Charies W. Cammack Associates, Inc. 

November 1992 



402 



Employee Benefits in 

Community Based Development Organizations (CBDOs): 

The Effect on Employee Recruitment and Retention 



EXECUTIVE SUMMARY 

In late 1990, seven national organizations came together to discuss concerns raised 
by their local affiliates - community based development organizations (CBDOs)' - 
about employee benefits, in particular the availability and cost of health and 
retirement benefits. The national organizations decided a needs assessment study 
of employee benefits was necessary. This collaboration, known as the National 
Benefits Consortium, also sought to better understand the relationship between 
available benefits and the recruitment and retention of executive directors and staff. 
Participating national organizations included the Center for Community Change; 
the Development Training Institute; the Enterprise Foundation; the Local Initiatives 
Support Corporation; the National Council of La Raza; the National Congress for 
Community Economic Development; and the Neighborhood Reinvestment 
Corporation. 

Over three hundred local organizations completed the first comprehensive 
employee benefits survey for the CBDO field. Thirty-eight CBDO executive 
directors and board chairpersons participated in five follow-up focus group 
discussions. Significant findings from the survey and focus groups follow: 

• Seventy percent CBDOs do not offer employer paid retirement plans. Of 
the 30 percent with employer contributed plans, the average contribution by 
the CBDO is only 2 percent of the employee's salary. 

• Satisfaction with employee benefits is the most important factor determining 
executive director job satisfaction; ranking higher than salary, education, 
tenure, or organizational age or size. Job satisfaction, in turn, is the most 
important determinant of an executive director's willingness to remain in 
their current position. 

• Thirty-eight percent of executive directors have considered leaving their 
present position in the last two years. The lack of a retirement plan is 
significantly related to executive directors seeking another position. 
Reducing job stress, which was found to be directly related to the adequate 
staffing and fiscal stability of the organization, is an important factor in 
increasing job satisfaction. [Directors in larger organizations indicated a 
significantly lower likelihood of considering changing positions]. 

Emphyn B4MtfiB in CBDOs: Tht Effta on Employtt Reeruitnwiu and Ktwaiom 1 



403 



* Health benefits are offered by 86 percent of the organizations surveyed. 
Concern was expressed over continued affordability and availability of 
health care benefits and its potential effiect on the fiscal stability of the 
organization. 

The study further shows that there is no significant disparity in opinion 
concerning benefits between executive directors and board chairpersons. Boards 
generally look to their executive director to initiate discussions about employee 
benefits. Focus group discussions among executive directors pointed to a desire 
for more recognition of the socially valuable work carried out by CBDO 
organizations, their staff and boards. 

The report concludes that increasing the percentage of executive directors 
and staff covered by retirement plans should increase retention within the 
community based development field and recommends the following: 

1) Develop an educational program on retirement planning that local CBDOs 
can implement for employees. 

2) Secure a vendor for an industry-wide retirement program based on 
voluntary participation with discretionary employer contributions. 

3) Educate foundations and other fiinders on the importance of funding 
stability, employee benefits, and general operating support. 

4) Undertake an educational program regarding employee benefits for boards, 
executive directors, and staff through newsletters and workshops. 

5) Analyze and study the data further to understand and address, where 
possible, other concerns and priorities which may reduce stress and improve 
retention. Revisit the health benefit question after national health policy is 
clearer. In the short-term, it is not feasible to initiate an industry-wide 
health care program. 

NOTE': Conmunily-bued developmm orpuuzMion (CBIX)«) for (he puipoae of Una •oidy include nooixofil 
or pniTl i on i providing a ran|te of serviecs which improve ihc aocial and econo mi c cooditioni of low-income communitiet 
in both urhen and ninl areai through progivmi emphesizing: the invohrcmeni of rondema in the dcvelopmcA of tlwir own 
neighborhooda. They include orpuuzetiona working on housing and economic devclopmena. advocacy, conunmily 
organizing and human lervicea. A ttrauficd random lainple of 907 orpuuzauona waa aelected from the National Congnaa 
for Conununity Economic Development liating of aver three4houaand.aix hundred organizationa and affUialea of the 
pamcipating national organizationa. Thiee-hundnd twenty-four CBOOa reaponded - 82 percent atgniTicantly engaged in 
houaing neighboriiood revitalization; 48 petecnt ui advocacy/comnainily ocganizing; and 41 peavcnc in human aervicea. 
ConunefT;ial Development la a function of a definite minonty of reaponding CBOOa. 

The leaearch methodology included both q u a rt i t a t i vc (mail aurvey) and qualitative (focua gfoupa) dau collection. For 
dau aiuUyaia. vanoua a a im i ca l techni<(uea mchiding analyaia of vanance. contingency lablea and rogreaaian were utilized. 

Bmplojn Btnefia in CBDOs: Tht Effta on Emphftt KtcnuOuu amd RtUmdam 2 



404 




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If 



NEIGHBORHOOD REINVESTME NT CORPORATION 

REPORT AND nNANCIAL STATEMENTS 

SEPTEMBER 30. 1992 AND 1091 



407 



ISOIKStiMtNW THephom 202 833 7932 

Washington. DC 20006 



Price Waterhouse ffn 



REPORT OF PTDEPEWDENT ACCOUNTANTS 



December 11, 1992 

To the Board of Director* 
Neighborhood Reinvettment Coiporation 

In our opinion, the accompuijring balance iheeta and the related ■tatement* of revenue, 
eipenae* and change* in fiind balance and of cash ilowi preaeot fairly, in all material 
respecu, the financial positian of Neighborhood Reinvestment Coipoiation at September 
30, 1992 and 1991, and the leaulti of it* op^ation* and it* ca*h flow* for the jrean then 
ended in conformity with generally accepted accounting principles. These f!T"nr|>| 
•tatements are the responaibility of the Corporation's management; our responsibility is 
to express an opinion on these financial statements based on our audits. We conducted 
our audits of these statements in accordance with generally accepted auditing standards 
which require that we plan and peifoim the audit to obtain reasonable assurance about 
whether the financial statements are free of material misstatement An audit includes 
BTsmining, on a test basis, evidence supporting the amounts and disclosures in the 
financial statements, assessing the accounting principles used and dgnificant estimate* 
made by management, and evaluating the overall financial statement presentation. We 
believe that our audits provide a reasonable basia for the opinion expressed above. 



(J^UlMft.*-- 



408 



NEIGHBORHOOD REINVESTMENT CORPORATION 
BALANCE SHEETS 



ASSETS 



September 30. 
1992 1991* 



Caih and cash equivalenta 
Short-tenn investments (at cost, which 
approximales market) 

Receivables: 

Neighborhood Housing Services of 

America, Inc. (Not^ 3) 
U.S. Government receivable (Note 4) 
Local governments 
Accrued interest receivable 
Other receivables 

Travel advances 

Prepaid expenses and other assets 

Office furniture and equipment, less 

accumulated depreciation of $1,783,294 
and 11,650,414, respectively 



Total assets 



$2,405376 


$3,125,997 


956.642 


2,812374 


1,000.000 

3,588,477 

77,935 

43,517 

119,499 


1,000,000 

20,972 

180,913 

55,861 


86,288 


64,839 


75,105 


54,633 



755,575 
$ 9.108.414 



UABILITIES AND FUND BALANCE 



Accounts payable and accrued expenses 
Grant commitments (Note 4) 
Unexpended local funds 
Total liabilities 

Fund balance 
Unrestricted 
Net equity in fixed assets 

Total fund balance 

Total liabilities and fund balance 



8,064338 



288.001 
755,575 

1,043,576 

$ 9.108.414 



574,464 
$ 7.890.553 



$2,525,753 


$2323,678 


5,446,926 


4,18U21 


92,159 


96,698 



6,601,697 



714392 
574,464 

1,288356 

$ 7.890.553 



The accompanying notes are an integral 
part of these financial statements. 



* Reclassified for comparative purposes. 



409 



NEIGHBORHOOD REINVESTMENT CORPORATION 

STATEMENT OF REVENUE. EXPENSES AND CHANGES IN FUND BALANCE 

FOR THE YEAR ENDED 



Revenue: 

Congressional appropriation 
Local govemmenla 
Interest 
Other income 

Total revenues 

Elxpenses: 

Employee compensation (Note 5) 

Grants and grant commitments (Note 4) 

Travel 

Occupancy (Note 6) 

Professional services 

Other general and administrative 

Telephone, postage and delivery 

Printing, films and supplies 

Conferences and workshops 

Depreciation 

Total expenses 

(Deficiency) excess of revenues over expenses 
Fund balance, beginning of year 

Fund balance, end of year 



September 30. 
1992 1991 



$31,113,477 
262,303 
763,752 
585,602 

32,725,134 



32,970.414 

(245,280) 
1,288356 

t 1.043.576 



125,554,000 

228,075 

1,157,964 

330,857 

27,270,896 



12,020,220 


11,259,012 


14,648,685 


9361,139 


1,515,047 


1,518.159 


1,471,788 


1,446.645 


934,055 


1,295,407 


688,688 


592,775 


563,958 


521,059 


636,576 


567,799 


358,517 


360,909 


132,880 


106,773 



27,029,677 

241.219 
1,047.637 

» 1.288.856 



The accompanying notes are an integral 
part of these financial statements. 



410 



NEIGHBORHOOD REINVESTMENT CORPORATION 

STATEMENT OF CASH FXOWS 
FOR THE YEAR ENDED 



Cash flows from operating activities: 

(Deficiency) excess of revenues over expenses 
Adjustments to reconcile (deficiency) excess of revenue 
over expenses to net cash used in operating activities: 

Depreciation 

(Increase) decrease in receivables 

Increase in travel advances 

(Increase) decrease in prepaid expenses and other asset* 

Increase in accounts payable and accrued 
expenses 

Increase (decrease) in grant commitment liability 

Decrease in unexpended local funds 

Net cash used in operating activities 

Cash Hows from investing activities: 

Purchase of ofiice furniture and equipment 
Purchase of short-term investments 
Sale of short-term investments 

Net cash provided by investing activities 

Net (decrease) increase in cash and cash equivalents 
Cash and cash equivalents, beginning of year 

Cash and cash equivalents, end of year 



Septem 


,bcr 30, 


1992 


1991* 


$ (245,280) 


S 241,219 


132,880 

(3,571,682) 

(21,449) 

(20,472) 


106,773 
90,728 
(8393) 
38,000 


202,075 

1,265,605 

(4339) 


469,027 

(1327,049) 

(32,897) 


(2,262,862) 


(4:^392) 


(313,991) 


(183309) 


(24,420308) 


(23,120.407) 


26.276340 


25.654,098 


1,542,241 


2350,182 


(720,621) 


1.927390 


3.125,997 


1.198.407 


S 2.405376 


S 3.125.997 



The accompanying notes are an integral 
part of these financial statements. 



* Reclassified for comparative puipotes. 



411 



NEIGHBORHOOD REINVESTMENT CORPORATION 

NOTES TO nNANClAL STATEMENTS 

YEARS ENDED SEPTEMBER 30. 1992 AND 1991 



WOTE 1 ■ ORGA^aZATIOW 

Neighborliood ReinveiUnent Cotporation (the Coiporation) wu eatabliahed by Congress on October 
31, 1978, by the Neighborhood Reinvestment Corporation Act The purpose of the Coiporation is 
to continue the joint efforts of the Federal financial supervisory agencies and the Department of 
Housing and Urban Development (HUD) in promoting reinvestment in older neighborhoods by local 
financial institutions in cooperation with the community, residents and local government. lUs effort 
wt* previously conducted by the Urban Reinvestment Task Force, which the Coiporation succeeded. 

In accordance with its enabling legislation, the Corporation is under the direction of a board of 
directors comprised of the Secretary of Housing and Urban Development, a member of the Board of 
Govemora of the Federal Reserve System, a Director of the Federal Deposit Insurance Coiporation, 
the Comptroller of the Currency, the Director of the Office of Thrift Supervision, and the Vice 
Chairman of the National Credit Union Administratioii. 

The Coiporation is exempt from Federal income tax under the provisions of the Neighboihood 
Reinvestment Coiporation Act and is recognized by the Internal Revenue Service as a tax-exempt 
organization as described in SS01(c)(3) of the U.S. Internal Revenue Code. 

NOTE 2 ■ SIGWnCAWT ACCOUNTIWC POUCIES 

Basis of Accountint 

The accompanying financial statements have been prepared on the accrual basis of accounting. 

Revenue Recognition 

The Corporation's primary funding is through Congressional appropriation. Monetary support is also 
provided by local government agencies. Unrestricted Congressional appropriations are recognized 
as revenue when appropriating legislation is enacted. Congressional appropriations restricted for 
equity capital grants are recognized as revenue when the related grant commitments are made by 
the Corporation. Support from local government agencies is recorded as revenue when costs are 
incurred; funds received but unexpended are reflected as a liability. 

Grants and Grant C np^mitnimty 

Grants and grant commitments ore recorded as expenses when lettetB of intent or grant commitments 
are signed by the Corporation's management Undisbursed grant iiinds referred to as deobligations, 
an reflected as reductions of grant expense when the related grant commitments are revoked. 



412 

• 2. 

Other Income 

Other income is comprised primarily of registration fees, return of prior year grants, donations, 
private grants and miscellaneous income. 

Caah and Cash Equivalents 

Cash in excess of amounts required to fund current operations is invested in short-term investments. 
Such short-tenn investments are stated at cost, which approximates market Cash and cash 
equivalents include investments with original maturities of three months or less. 

Oflice Furniture. Equipment and Software 

Office furniture, equipment and software acquired with a cost in excess of $250 is capitalized and 
recorded at cost. Depreciation is calculated using the straight-line method over the estimated useful 
lives of the assets, which are five to eight years. 

NOTE 3 - NEIGHBORHOOD HOUSING SERVICES OF AMERICA. DSC. (NHSA^ 

NHSA is a private non-profit corporation which provides financial and fundraising services to the 
NeighborWorks network. The Corporation is the principal source of funding for NHSA. Total ( -ants 
made by the Corporation to NHSA amounted to $3352,000 and $3,300,000 for fiscal yeara 1992 
and 1991, respectively. 

On September 29, 1986, the Corporation entered into a Revolving Credit Agreement with NHSA 
whereby the Corporation agreed to make advances to NHSA from time to time, not to exceed an 
aggregate outstanding balance of (1,000,000. These advances will enable NHSA to purchase low 
interest mortgages from NHS programs and to warehouse these mortgages pending closing on sales 
to institutional investors. NHSA agreed to pay the Corporation a fee on the average daily outstanding 
loan balance at the rate of 3% per annum. TTie agreement extends through September 30, 1993; 
however, it may be terminated by either party upon ninety days written notice. As of September 30, 
1992 and 1991, the Corporation had advanced a total of S1,000,000 to NHSA. 

NOTE 4 • GRANT COMMITMENTS 

The Corporation provides grant funds to NeighborWorks programs, neighborhood preservation 
projects and other similar programs in partial support of program costs, to create revolving loan 
funds, and to provide certain equity capital funding. Grants are recorded at the time that the funds 
are committed. Committed but unexpended grant funds are recorded as a liability in the 
accompanying financial statements. As of September 30, 1992 and 1991 the Corporation remains 
liable for outstanding grant commitments in the following program areas: 



413 



1992 1991 



Creation of New NeighborWoriu Orguuzatiam 


t 505,000 


t 474.189 


Organizational Expanaion 


453.776 


1.256.521 


Preserving Affordable Housing 


559.?50 


345.500 


Model Strategy 


125,000 


210.000 


Secondary Market Activitie* 


745,400 


329,350 


Mutual Housing 


633,000 


1.565,761 


NHSA 


100,000 


- 


Equity Capital 


2321,500 


• 


Training Grant* 


4.000 


- 



15,446,926 $4.18U21 

During the year ended September 30, 1992, the Corporation obtained a special Congressional 
appropriation of 15,000,000, payable in 8 quarterly payments of 1625,000 begiiming on September 
1, 1992. This restricted appropriation was made for the purpose of providing local neighborhood 
revitalixation organizations with revolving homeownerahip lending capital and equity capital until 
September 30, 1994. The Corporation committed and recognised as revenue $4,213,477 of this 
appropriation during the year ended September 30, 1992. Of this total, the Corporation received . 
$625,000 during the year, the remaining $3,588,477 is reflected as a recehrable at Septemba- 30, 
1992. ' 

NOTE 5 • PENSION PLAN 

The Corporation has a defined contribution pension plan which meets the requirements of Section 
401(k) <^ the U.S. Internal Revenue Code. The Corporation contiibiUes an amount equal to 8% of 
the social security integration level in effect and 13.7% of each active participant's compensation 
in excess of the social security integration leveL In addition, employees may contribute up to 10% 
of their annual salary to the plan of which the Corporation matcliea up to 75% of the first 6% of the 
employees' atmual salary. Elmployer contributions to employee accounts vest 33% after 3 years of 
employment and 100% after five years. Employees may also borrow against their vested benefits. 
Total pension expense was $847,037 and $658,943 for fiscal year* 1992 and 1991, respectively, 
after giving effect to the application of funds forfeited by non-vested terminated employees amounting 
to $27350 in 1992 and $187,536 in 1991. 

NOTE 6 • CONTINCENCIKS 

The Corporation leases office space in Washit^;toii, D.C., and in a number of other cities thrmi||iout 
the United Slate*. The following is a schedule, by year, of future minimum rental payments on 
noncancellable operating leases, having initial or remaining terms ci more than one year a* of 
September 30, 1992: 



414 



-4 



1993 
1994 



•1.519397 

1995 ^'^^^^ 

J^J 1;J84.508 

1997 
Thereafter 



588,702 
21,580 



$4.872,597 

■n» cort of operating lease, included in occupancy expend for the yean ended September 30, 1992 
and 1991 waa $1,463,797 and $1,440,600. reapectively. 

Al September 30, 1992. the Corporation waa the guarantor of a total of $410,000 in loans NHSA had 
made to two NeighborWorks Organizations. 



415 



IMIKSIfMtNW TtKpdone 302 833 7932 

Wailiington. OC 20006 



Price Waterhouse ^|f 



REPORT OF mPEPEWPENT ACCOUPrTAWTS 

ON AnnmoNAL information 



December 11, 1992 



To the Board of Director* 
Neighborhood Reinveitment Corporation 



ADDmONAL INFORMATION 

In our opiiuon, the aocompan]ring Combining Statement of Revenue, Ejcpenae* and 
Changea in Fuiul Balances u fairly stated in all material respect* in relation to the basic 
financial statements, taken as a whole, of Neighborhood Reinvestment Corporation for the 
year ended September 30, 1992, which are covered by our report dated December 11, 
1992 presented in the firat section of this document. Our audit was made for the purpose 
of forming an opinion on the basic financial statements taken as a whole. This information 
is presented for purposes of additional analysis and is not a required part of the basic 
financial statements. Such information has been subjected to the auditing procedures 
applied in the audit of the basic financial statements. 



(^^XJ^^^^iu^ 



67-798 O— 93 14 



416 



NDCHBORHOOD REINVESTMENT CORPORATION 

COMBINING STATEMENT OF REVENUE. EXPENSES AND CHANCES IN FUND BALANCES 

YEAR ENDED SEPTEMBER 30. 1992 



Deficiency of revenue over expense* 
before capiul purchases 

Fumiture and fixture purchase* 

Net change in fund balance 
Fund balance, beginning of year 
Fund balance, end of year 



(51314) 
(313^1) 

(365,305) 

533,256 

t 167.951 



(61.086) 

(61.086) 
181.136 



(132380) 
313.991 



181.111 
574.464 





Congressional 


Other 


Fixed 






ApPToprJatioM 


?<W9<f» 


Assets 


Total 


Revenue: 










Congressional appropriation 


$31,113,477 


t 


1 - 


$31,113,477 




• 


262303 




262303 


Interest 


. 


763.752 




763,752 


Other income 


- 


585.602 




585.602 


Total revenue* 


31.113.477 


1,611.657 




32.725,134 


Elxpenses: 










Elmployee compensation 


11,949385 


70.835 




12,020320 


Grants and grant commitment* 


13,220.650 


1.428.035 




14.648.685 


Travel 


1.483398 


31.149 




1.515,047 


Occupancy 


1.467333 


3.955 




1.471.788 


Professional service* 


853.294 


80.761 




934.055 


Other general and admim'stratiye 


1362.228 


26.994 




1389322 


Conferences and workshops 


327.503 


31.014 




358317 


Depreciation 


- 


- 


132.880 


132,880 


Total expense* 


31.164,791 


1.672.743 


132,880 


32.970.414 



$ 120.050 $755.575 



(245380) 

(245380) 

1388356 

$ 1.043.576 



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Schedule I 
maBOBBOOD BEHVESmT COBFOBATKNI 

CLASSiriCATiai/cowaBAnaii plai 

1. l«3 



Cla— Title 



Jaauary I, 1993 
Salary Bange 



L-l 



L-2 



L-3 



L-4 



L-5 



L-« 



L-7 



Mall Clerk 
Receptionist 

AccoimtiiiK Techniciaa I 
Mall/Office Services Clerk 
PcrBonel Clerk 

4ccoantiiie Teciialciaa II 
Secretary 

AcciNBtliiK Tectaalclan III 

Data Center Asalstaat 

rield Office Assistant 

riaaaee Assistant 

mforaatioa Services Assistant I 

P frtisslm Assistant 

Scalar Secretary 

AndioTisaal Assistant 
lafoiaatioa Services Assistant II 
Pmcran Assistant 
Tralalnt Assistant 

AMsistaat Director. Office Services 
A ssist i t Accounts Payable Supervisor 
rii—ili 11 liimi Assistant 
Payroll Accountant I 
Research Assistant I 

lihilnlstratiye Assistant 
AdBlnistratlve Assistant. Lesal 
Assistant Graphic Designer 
District Director Assistant 
Pvyrall Accountant II 
Research Aasistsat II 
Staff Accooataat I 
TniainK Production Assistant 



L-8 



Bts Payable Supervisor 

AitnlwIstratlTe Specialist. Field Operations 
Ateinistrative Specialist. Pinance & IBM 
Administrative Specialist. Pmcna Review 
Assistant Secretary/Paralesal 
et Specialist 

wirarloas Specialist 

ployaent Specialist 



915,100-322.700 
916.600-324.900 

318.300-327.500 
920.100-330.200 



322.200-333.300 



324.300-336.500 



926.700-940.100 



329.400-344.100 



419 



Level C1«M Title Salary Range 

L-8 Meetliw Planner $29,400-344,100 

Payroll Supervisor 
Research Specialist 
Staff Accountant II 
Hrlter/Editor 

1-9 Audiovisual Sjecialist $32,300-348.500 

Benefits Specialist 
Editorial Services Specialist 
Graphic Designer 
Financial Mana«eaent Officer I 
Meld Service Officer I 
Hel^hbortaood Strategies Officer I 
Prosraa Review Evaluation Specialist 
Public Affairs Specialist 
Staff Accountant III 
Training Event Specialist 
Training Production Coordinator 
Training Specialist I 

L-10 Associate Director, Data Processing $35,600-353.400 
Pleld Service Officer II 
Pinaacial Hanageaent Officer II 
Relghborteod Strategies Officer II 
Prograa Review Officer I 
Training Specialist II 

L-11 Assistant Director, Infoivation Services $39,200-$58.800 
Assistant Director, Training 
Associate Director. Administrative Services 
Associate Director. Coapoter Systeas 
Associate Director, Editorial 
Econoaic Developaent Officer 
Field Service Officer III 
Pinaacial Manageaent Officer III 
Prograa Review Officer II 
Training Specialist III 

L-12 Assistant Director, Accounting (O.) $43,10O-$64,70O 
Assistant Director, Accounting (SBP) 
Assistant Director. Pinancial Hanageaent 
Assistant Director. Boaan Resources 

Assistant Director. Training. Planning & Currlculua Dev. 
Associate Director, ri— iiiiltji Leadership Developaent 
Associate Director. Pnblications 
Attorney 

Legislative Representative 
Real Estate Developaent Officer 
Pro g r aa Review Anditor 
Prograa Review Officer III 
Senior Pleld Service Officer 



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D. MICHAEL RTLEY. DrPXCT-QR. EXAMINATION AXD D^SCBANCE- NCCA 

ROBERT M- FEVVER. GE!iEK4L COUNSEL SCCA 



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422 

Regarding the operating expenses, we are for the second year in 
a row recommending a reduction and would respectfully request 
that the committee consider the $945,250 limitation when approv- 
ing our portion of the HUD-Independent Agencies budget. 

We respectfully ask, Mr. Chairman, that you support our author- 
ization request in order that we might respond quickly, in the 
event the situation should dictate that, by supplying a source of 
emergency funds. The central liquidity facility does bolster public 
confidence during periods of liquidity stress. Since fiscal year 1990, 
the National Credit Union Administration Board has continued to 
issue both appropriate regulations and provide direction for imple- 
mentation of the Community Development Revolving Loan Pro- 
gram for credit unions. For the past three consecutive fiscal years, 
we have processed and received applications and have provided 
during this period $6.5 million, which is nearly the entire loan 
fund to 41 credit unions that have applied and are now participat- 
ing in the program. They have repaid approximately 1.3 million. 
We have collected interest of 239,000; this interest has been used to 
provide technical assistance and to establish a reserve against any 
losses which may occur. 

LOW INCOME CU PILOT PROGRAM 

The National Credit Union Administration Board has directed 
that a special pilot program be undertaken to study all the aspects 
that relate to the low-income credit unions to determine how we 
might improve on the operations and provide better service and su- 
pervision to these credit unions. The results of this study will be 
forthcoming later this summer. 

CDCU LOAN PROGRAM 

Mr. Chairman, there has been not only an increase but a very 
much favorable increase this year in interest in the community de- 
velopment credit unions and the revolving loan program, particu- 
larly from the Members of the House and Senate Banking Commit- 
tees. We are thgmkful for the attention and the record of NCUA in 
administering the program. The loan program laid dormant for 
many years before it was assigned to us, and a great deal of the 
direction and credit for bringing these programs to the state that 
they are now, where we have full participation with these credit 
unions, will be a credit to Mr. Robert Swan on the NCUA board. 
Mr. Swan testified on this subject before the Subcommittee on Fi- 
nancial Institutions on February 3d; that is, Financial Institutions 
of the House Banking Committee. I would commend Mr. Swan's 
testimony to you and ask permission to insert it in the record. 

Mr. Stokes. Without objection, it may appear in the record at 
this point. 

[The information follows:] 



423 



Testimony 

OF 

Robert H. Swan 

Board Member 

National Credit Union Administration 



before the 

Subcommittee on Financial Institutions 

Supervision, Regulation and Insurance 

OF the 

COMMITTE ON BANKING, FINANCE AND URBAN AFFAIRS 

U.S. House of Representatives 



February 3, 1993 



424 



Chairman Neal amd distinguished members of the Subcommittee, it 
is a pleasure to appear before you today to discuss NCUA's 
experience and involvement with Coomunity Development Credit 
Unions (CDCUs) . NCUA supervises and insures 8,200 federal credit 
unions and insures 4,750 state- chartered credit unions. Of that 
total, 143 are designated as ■coomunity development* credit 
unions, institutions that bring financial services to our 
nation's economically disadvantaged. 

While the discussion of coomunity developoient banks is a 
relatively new concept, CDCUs have been serving in distressed 
communities for several decades, in some cases for 50 years or 
longer. Facing difficult challenges, CDCUs have proven that it 
is possible to bring financial services to poor rural and urban 
comotunities with minimal govermnental aissistauice. 

NCUA is coomitted to fostering a favorable regulatory climate for 
CDCUs to operate amd we stand ready to work with leaders in 
Congress auad the White House whenever necessary. 



425 



I. CDCU CHARACTERISTICS 

For purposes of NCUA's Rules and Regulations, a credit union 
serving a predominately low income field of membership is 
eligible to receive a "low income" designation. By receiving the 
"low income" designation, these credit unions, also known as 
CDCUs, 1) are entitled to accept nonmember deposits, and 2) may 
participate in the Community Development Revolving Loan Program 
for Credit Unions (the Program) , which I will address in a 
moment . 

It is important to note that aside from these two differences, 
CDCUs operate exactly as other credit unions. CDCUs have no 
other special authority or powers and they must pass the same 
examination requirements as do all credit unions. Depending on 
their individual size and capabilities, CDCUs may offer any 
product or service needed by their members; including consumer 
loans, first and second mortgages, home equity lines of credit 
and small business loans. 

NCUA has been able to extract data from our information base 
which allows for a direct comparison of CDCUs with other credit 
unions who sei-ve more affluent memberships. This information is 
proving extremely useful in determining different needs and 
challenges facing financial institutions operating in distressed 
areas. 



426 



As Of midyear 1992, there were 143 CDCOs holding aggregate assets 
of $255.4 million. These institutions average $1.8 million in 
assets cotr^jared to an industry average of $19.2 million. 

Clearly, CDCUs face difficult challenges. Their cost of doing 
business is relatively high due in large part to the communities 
they serve. Delinquency rates (loauis over 60 days past due) run 
3.4 times higher than rates for all credit unions. However, from 
year- end 1991 to midyear 1992, CDCUs experienced a 14 percent 
decline in delinquencies, from 6.3 percent to 5.5 percent. Given 
the overall economic climate, we find that decline to be both 
surprising amd pleasing. 

At year-end 1991, CDCO chargeoffs were running twice as high as 
all credit unions. While we find this somewhat disturbing, it is 
important to note that relative to CDCUs- delinquency rates, 
actual chargeoffs are proportionately lower. In our opinion this 
is an indication of member loyalty, where under difficult 
economic circumstances individuals are still living up to their 
financial obligations. 

As might be expected, CDCO operating expenses tend to be higher 
tham for all credit unions. This can be explained in part 
because typical members have low balance-high demand accounts 
which often strains a CDCU's limited resources. 



427 



From an operational standpoint, CDCUs face many seemingly 
insurmountable difficulties. Yet, CDCUs have been able to build 
capital that is comparable to that of all credit unions. Midyear 
1992 numbers show CDCUs' equity capital at 7.3 percent compared 
to 7.7 percent for all credit unions. This is an indication that 
for all the challenges CDCUs face, they are successfully seirving 
their communities. Appendix I and II detail a niimber of salient 
characteristics of CDCUs. 

II. NOHMEMBBR DEPOSITS 

Credit unions serving economically distressed citizens often need 
outside resources and capital to play a meaningful role in their 
communities. NCUA recognizes the valuable contribution low cost 
funds can make to a CDCU's operation. Consequently, our "limited 
income" designation permits CDCUs to accept deposits from groups 
outside their designated field of membership. 

Specifically, up to 20% of a CDCU's total shares may be from 
nonmember sources. CDCUs wishing additional nonmember deposits 
beyond 20 percent of shares may obtain a waiver through our 
regional offices. 

At year-end 1992, approximately 10% of total CDCU shares were 
from nonmember sources. Low member loan demand and depressed 
interest rates have reduced the potential return from nonmember 



428 



deposits but as the economy gains momentum, NCUA expects to see 
more activity in this area. 

The Agency has come under criticism Crom groups who feel that our 
policy regarding nonmember deposits hcunpers CDCUs ability to 
grow. They would prefer that few or no limitations be placed on 
an institution's ability to gather outside deposits. The Board 
remains convinced that our nonmember deposit rule is an 
appropriate safety an0 soundness measure, but we are nevertheless 
committed to work with CDCUs to address their concerns. 



III. RECSMT INITZATIYBS 

NCUA has taken concrete steps to better assist CDCUs, recognizing 
their unique characteristics omd value, while maintaining our 
focus on safety and soundness. The road has been difficult, but 
things are beginning to in^rove. Between 1982 and 1990, an 
average of 45 CDCUs a year either lost their "low income" 
designation or were merged or liquidated. 

Recognizing the need for more intense supervision, NCUA for the 
past two years has placed a greater emphasis on CDCUs. I am 
pleased to report that we are already witnessing improvement. In 
1992, the number of CDCUs lost fell to only seven euid it appears 
that the number of CDCUs may actually increase this year. 



429 



A. Community Development Revolving Loan Prograun (Program) 

The Community Development Revolving Loan Program was established 
by Congress with a $6 million appropriation in 1979 (PL 96-123) . 
The Community Services Administration (CSA) administered the 
Program in cooperation with NCUA until 1983, when Congress 
transferred authority to Health and Human Services (HHS) . 
Between 1983 and 1986, HHS failed to implement regulations and 
the Program became dormant. Congress transferred the Program to 
NCUA in 1986. 

The Office of Management and Budget subsequently informed NCUA 
that the Greimm-Rudman-Hollings Act suspended the progrsim. 
Congress had limited federal assistance programs to the most 
recent spending level. Since no funds had been previously 
dispersed and there were no provisions in the Budget 
Reconciliation Act to the contrary, 0MB concluded that no monies 
could be expended. However, in late 1988, the Congressional 
Appropriations Committee directed NCUA to begin making loans. 

The Program is designed to assist CDCUs by making available to 
them low interest loans for development activities in their local 
communities. The interest received on the loans is then used to 
provide technical assistance to the Seiine participating credit 
unions. NCUA assumes all operational expenses. 



430 



Since NCUA assijmed exclusive responsibility for the program more 
than $6.3 million in low interest loans have been revolved with 
an additional $1 million to be loaned later this year. Technical 
assistance is being fully funded and we are finding that demand 
is beginning to outstretch availadsle fiinds. 

I am pleased to report that since NCUA begain administering the 
Program, not a single loan has fallen delincjuent and no losses 
have been incurred. Consequently, the fund balance has actually 
begun to slowly increase and is now almost $6.7 million. 

The success of the Progreun lies within its unique structure. 
NCUA and participating credit unions have the ability to tailor 
loans and technical assistance to meet the specific needs of each 
institution. The fact that the program is revolving in nature 
assures that funds will be made available in future years even 
though demand and need may exceed the Program's resources. 

B. CDCU Pilot Program 

After three years of operating the Revolving Loan Prograun, we 
realized there were areas where our regulations were inadequate 
or outdated. Consequently the Board last July approved a one- 
year intensive pilot prograun (Appendix III) , that is charged with 
reviewing the entire scope of our activities as they relate to 
CDCUs . Select NCUA personnel were chosen to steer the program 



431 



and substantial progress has already been made. We are on 
schedule to complete our work later this summer. 

In brief, the accomplishments of the program will result in: 

The development of an information data base which will 
distill operational strengths and weaknesses of CDCUs; 

A review of our examiner training program to ensure that 
staff are sufficiently trained in areas of cultural 
diversity to meet the unique challenges associated with 
regulating CDCUs; 

Development of a cadre of NCUA staff with specialized 
knowledge and awareness of CDCUs; 

A review of chartering procedures to speed up the 
process; 

Issuance of new rules and regulations relating the 
Revolving Loan Program, eind other CDCU related sections. 

As a part of the program, NCUA staff conducted four public 
meetings with CDCU representatives in New York, Philadelphia, 
Atlanta and Washington, DC. Those sessions were well attended and 
characterized by valuable and spirited exchanges. It is our hope 
that these meetings conveyed to CDCUs and their supporters that 
the NCUA Board and staff are prepared to listen and consider 
issues which need to be addressed. 

C. Chartering 

He have already reviewed chartering policies as they relate to 
the estsUslishment of CDCUs. Perhaps the most inporteuit news I 
bring to the subconmittee today is that the NCUA is back in the 

8 



432 



business of chartering new CDCUs . After a lapse of almost four 
years, the NCUA Board approved last October two CDCU charters and 
at our most recent board meeting chartered a third. 

These institutions will serve communities in South Central Los 
Angeles, Omaha and Central Brooklyn. The new CDCUs will operate 
in areas of great need, areas where the most common financial 
institution is a check- cashing outlet or a pawn broker. 

As NCUA gains more experience in chartering and fostering the 
growth of CDCUs, we will continue to streamline the chartering 
process. The most recent charter was awarded approximately six 
months after receipt of application. NCUA will continue to 
focus, however, on the long-term viability of each new charter. 
It is our strong feeling that the establishment of new charters 
should not be tied to an artificial number within an artificial 
time-frame. Progress in this area, if it is to be real and 
lasting, must proceed with careful consideration. 

D. New Regulatory Proposals 

Last fall, NCUA proposed regulations changing sections as they 
relate to obtaining a "low income" designation and the operation 
of the Revolving Loan Progreun. The comment period closed on 
February 1, and we expect to implement final changes in April. 
The proposed rule is attached as Appendix IV. 



433 



If adopted, and I expect that they will, these changes will ease 
the requirements for obtaining a "low income" designation, ease 
documentary burdens, make all CDCUs eligible to participate in 
the Revolving Loan Fund's technical assistance program and reduce 
regulatory burdens. 



CONCLUSION: 

Mr. Chairman, long before the term "community development 
banking" beceune a high profile topic of discussion in our 
country, NCUA begam in earnest to review its own policies 
relating to CDCUs and to isaprave relations between the regulator 
and the regulated. The NCUA Board understeinds amd accepts the 
vital role CDCUs play in their communities. We are committed to 
playing a positive role in fostering CDCU development while 
protecting the well -capitalized credit union share insurance 
fund. This process remains dynamic and ongoing. 

It is our sincere belief that CDCUs have a vital role to play in 
any initiative where ccnmunity development is a goal. While the 
Congress attempts to find solutions to the unmet financial needs 
of distressed communities, we would respectfully submit that 
CDCUs can serve as models of successful self-help. NCUA stands 
ready to provide assistance and guidance wherever needed. 

10 



434 

APPENDICES 

I. "Limited Income Credit Unions," NCUA Research Study #17, July 1992. 

II. Community Development Credit Unions, Progress Report, November 1992. 

III. NCUA Board Action Memorandum, Pilot Program: Community Development 
Credit Unions, July 28, 1992. 

IV. Community Development Revolving Loan Program for Credit Unions, 

Proposed Rule, Federal Register Vol. 57, #231, December 1, 1992. 



435 



APPENDIX I 




LIMITED INCOME 
CREDIT UNIONS 



RESEARCH 
STUDY NO. 17 



Prepared By 

NCUA OFRCE OF EXAMINATION AND 
INSURANCE 

July 1992 _^^__^_^ 



436 



Limited Income Credit Unions 



This research study was written by LirxJsay L Neunlist Office of 
Examination and Insurance. 



"Limited income" is the designation the National 
Credit Union Administration (NCUA) uses to 
identify credit imions that serve a predominantly 
lower income field of membership. The term is 
similar to but different from "commuiuty develop- 
ment" credit uiuons. Community development 
credit uiuons are self- selected, whereas limited 
income credit unons meet specific criteria estab- 
lished by the NCUA Board. Credit unions with this 
desigiuition are entitled to: 

(1) take norunember deposits up to 20 percent 
of shares, and 

(2) obtain loans from the Revolving Loan Fimd. 

As of year end 1991, there were 156 federally 
insured, active or merging credit unions with this 
desigr\ation, with a total of $282,557,742 in assets. 
Their assets average $1.8 million, compared to $1.6 
million at year end 1990. As a group, they have 
equity capital of 7.7 percent of assets, not including 
allowance for loan losses. This capital level is the 
same as for all federally ii^sured credit unions. 
Overall delinquency is 5.5 percent, more than three 
times higher than the average for all credit uiuons. 
The loan-to-asset ratio is 61.7 percent, a little higher 
than for all credit unions. The average CAMEL code 
is 3. See Table 1 for a summary of the characteristics 
of these credit unions compared to all federally 
insured credit unions. 

These credit unions are not distributed equally 
among the regions. Region HI has the largest share, 
with 40 percent by couiU and 30 percent of the 
assets. Table 2 shows Ae numbers of these credit 
unions and the amount of their assets by region. 

Limited income credit unions cluster in a few "type 
of membership" codes. The most prevalent one is 
religious, followed by rural community groups that 
are not govenunent-assisted. Next are government- 
assisted urtjan groups and "other" urban commu- 
nity groups. The "government assistance" in these 
category names refers to Office of Ecanomic Oppor- 
tunity and Community Development funds that 
were given out in the 1960s and 1970s. These funds 



are gone now, so these codes probably mean "used 
to be government-assisted". Table 3 lists the types 
of membeiship of low income credit unions. 



TABLE 1 

CHARACTERISTICS OF LIMITED INCOME 

CREDIT UNIONS COMPARED TO ALL 

CREDIT UNIONS 



Limited 
Income 



All 
CUs 



Number 
Assets 
Average size 
Equity capital ratio 
Delinquency ratio 
Loan-to-asset ratio 
Average CAMEL 



156 12960 

$282,557,742 $225,157,080^94 
$1.8 million $17.4 million 



7.70% 

5.40% 

61.70% 

3 



TABLE 2 



7.70% 

1.60% 

58.80% 

2 



DISTRIBUTION OF LOW INCOME CREDIT 
UNIONS AND THEIR ASSETS BY REGION 







Percent 




Percent 




No. 


Distiib. 


Assets 


Disthb 


Region I 


21 


14% 


$51332,384 


18<Vo 


Regionn 


31 


20% 


$20,148350 


7%- 


Regionni 


61 


40% 


$93374,711 


33% 


Region rv 


22 


14% 


$58^42,662 


21% 


RegionV 


10 


6% 


$34,037,433 


12% 


Region VI 


9 


6% 


$25^)22,202 


9^c 



154 100% $282357,742 100% 



Notr All infoimatian in tfiis report is as of year end 
1991 unless otherwise noted. 



437 



References to "all" credit unions or "other" credit 
utuons include all federally iiuured, active or 
merging credit uniocu. The limited income numbers 
are iiKluded in the totals because they are not large 
enough to affect the results. 



TABLES 

DISTRIBUTION OF LOW INCOME CREDIT 
UNIONS BY TYPE OF MEMBERSHIP 



Religious 


35 


Rural community groups. 




not government-assisted 


32 


Urt)an community groups, ' 




government-assisted 


22 


Urban comm. groups, 




not government-assisted 


20 


All otlier assocutional groups 


15 


Fraternal professioiuL aiul trade 




Multiple groups, no predominant type 




Rural cooununity groups. 




govenunent-aaststed 




Mult groups, prinvarily occupational 




Cooperabves 




Labor union groups 




Manufacturing, food and related 




Chemicals and allied products 




Machirwry except electrical 




Other, manufacturing 




Utilities 




Services 




Health 




Service*, other 




Local govenmwnl 








Educational elementary and Herniary 





Note: 'govcmsMnt awittanoe' itfos ID Office of 
Eccnoatic Opportunity and Commimly Develop- 
ment fimds. 



The Income Level Aaaodated with Lim- 
ited Income Credit Unions 

The NCUA Rule* and Regulaiiara wluch ccnbol tlie 
impleoMntation of the Federal Credit Unian Act *et 
the income limit for low incone oedit unian* at lli» 
"\owti level *tandard of living rlmifif iliijii a* 



established by the Bureau of Labor Statistics (BLS) 
and as updated by the Employment and Traming 
Admmistration of the U.S. Department of Labor" 

Appendix I gives complete citations of the Federal 
Credit Union Act and the NCUA Rules and Regula- 
tions regarding all aspects of the Limited Income 
program. 

The BLS sets the lower level standard of living at 70 
percent of the median household income, by house- 
hold size. As of 1990, the overall median household 
income in the U.S. was $29,943. Let's call it $30,000, 
of which 70 percent is $21,000. The average house- 
hold size these two incomes are associated with is 
2.6 people. 

To give perspective on this number, the Congres- 
sional Budget Office reports that the bottom 20 
percent of households (this size group is called a 
"quintile") live on less than $14,000 per year, with 
an average income of $8,200. The average income 
of the second quintile from the bottom is $20,000, 
with a range of $14,000 to $26,000. About 30 percent 
of all households live on less than $21,000. 

This group has had a dediiw in real (that is, after 
inflation) pre-tax income sir\ce 1977, while all higher 
iiKome levels have had real gains. Thus the often 
spoken conclusion that the poor are getting f>oorer. 

In micro-ecotu>mics, it is a basic principle that below 
a certain level of iiKome, households are 
"dissavers," that is, they spend more than they bnng 
in. They manage this feat either by dipping into 
savings or by failing to pay back borrowings. 
Movir\g up the inonne scale, no oiw knows at what 
income households move from being dissavers to 
savers, but the demarcation probably falls t>etween 
SISXXX) arul $20/XX). The connection between 
"dissaving" and low income has obvious implica- 
tions for low income credit unions. 



The Recent History of Limited Income 
Credit Uniotu 

Becauie of changes at NCUA in computer hard ware 
and softwaie, long-term infotmatian on low income 
credit imion* it limited. We have basic information 
back to year end 1987, and a listing for mid-year 
1962. Table 4 displays thi* information. Unfortu- 
nately, the numbers in Table 4 ate contamiruted bv 



438 



-' ^--•9!M 



some large credit unions in 1987 and 1988 that may 
ha\e been mcorrectly coded. Most likely, since 1982 
the number of low income credit uruons has con- 
tinuously declined. Table 5 gives counts of gains 
and losses smce 1987. 



TABLE 4 

NUMBERS AND ASSETS OF LOW INCOME 

CREDIT UNIONS 

1982 and 1987 through 1991 



1982 

1987 
1988 
1989 
1990 
1991 



Number 



363 

331 
300 
191 
167 
147 



Assets 



Average 
Assets 



$183,764,696 $50639 



$857,114,770 
$776,607,558 
$211535,000 
$230384.000 
$231,424,000 



$2389,471 
$2388,692 
$1,107313 
$1,379345 
$1374313 



Note; During 1989, Region I corrected the coding of 
se\eral large credit uiuons that had previously been 
miscoded. 



Average size has been increasing at least since 1989. 
In that year, the average dollar value of assets was 
$1.1 million, increasmg in 1990 to $1.4, and thence to 
$1.6 million in 1991 — growth of 45 percent during 
this 2-year period. The total credit union commu- 
nity has been undergoing the same process of 
declining numbers with increasing assets, leading to 
higher average assets. During this 1989 to 1991 
period, all credit unions grew by 23 percent, on 
average. 

Given the difficulties eiKountered by limited irKomc 
credit uruor\s as a group, it is remarkable that they 
have achieved growth faster than that of the overall 
credit uiuon community. 

Tracking limited income credit unions over time 
raises puzzling issues about how they get classified 
and de-classified as limited income. Table 5 shows 
the numbers of additior\s and deletions over time. 
Appendix III lists the additions by name by year 
smce 1987. Appendix IV lists the deletioru by name, 
but only for those credit uruons that were deleted 



because of merger, liquidation, or purchase-aiul- 
assumption. oiiier credit unions lost their previ- 
ously-held limited income designation for some 
other reasoi\. These are not on the list in Appendix 

rv. 



TABLE 5 

CREDIT UNIONS GAINING AND LOSING 

LIMITED INCOME STATUS BY YEAR. 

1988 through 1991 



Year 

1988 
1989 
1990 
1991 



Losses 

57 

122 

18 

26 



Gaii\s 

18 

10 

7 

11 



Net Losses 

39 

112 

11 

15 



An average of 44 limited iiKome credit unions were 
lost per year. 

How Limited Income Credit Uiuons Com- 
pare to Others 

Lending 

Tables 6 and 7 display information about loar\s by 
peer group for limited income credit unions (Table 
6) and for all credit unions (Table 7). The average 
loan size for limited income credit uiuoru is $3,484, 
compared to $3,916 for all credit unions. The loar\s 
of limited iixcome credit uiuons average 89 percent 
of die dollar value of loaiu made by all credit 
uiuons. Needless to say, smaller loans cost more per 
dollar to service than do larger loans. 

Limited income credit uruons have slightly less of 
their loan portfolios in mortgage loans than do other 
credit unions: 33 percent in mortgages for limited . 
income credit unions, compared to 35 percent for all 
credit uruons. For limited iiwrome credit unions, the 
shift to lending which emphasizes home ownership 
reduces delinquency and losses. Ur\fortunately, this 
emphasis means less service for the majority of low 
income members, who are renters. 

Interest rates 

Linuted irKome credit unions charge somewhat 
higher interest rates for their loans than do other 



439 



• ' ■"■•■"^■^ 



credit unions. Overall, limited income credit unions 
report 12.4 percent as their income on loans, com- 
pared to 11.4 percent for all credit unions. The 
higher average yield is especially striking the heavy 
emphasis on mortgage lending, which generally is 
lower yielding. 

Table 8 displays the interest rates reported on the 
year-end 1991 Call Report for types of loans most 
likely to be used by lower income borrowers. Note: 
these are interest rates that would be charged to a 
new borrower as of December 1991, not the yield of 
the current portfolio. 

The higher rates are made necessary by the some- 
what higher credit risk associated with many lower- 
income households. For better or for worse, lenders 
cannot turn down a high risk applicant at the 
"going" rate and offer him or her a higher rate 
commeiisurate with her/his credit status. One 
credit union solves this problem for car loans by 
stepping up interest rates as the age of the collateral 
goes up: cars less than 5 years old get one rate, older 
cars get a higher one. 

Since credit tmioixs can't explicitly set ii\terest rates 
appropriate to the particular credit risk, each 
institution selects its risk level by setting its interest 
rate. Better credit risks get better rates by borrowing 
elsewhere. Worse risks get worse rates at finance 
companies or neighborhood lenders. Thus, the 
limited income credit union becomes the 'lender of 
next-to-last resort." 



TABLE 6 

MORTGAGE AND NO^nv^ORTGAGE LENDING 
BY PEER GROUP LIMITED DMCC^ffi CREDIT 



Total Dollar Amount of Loans 

Peer Norunortgage 

Group Mortgages Loans 



All 
Loans 





UNIONS - YEAR END 1991 




Peer 




Nonmortgage 


All 










Group 


Mortgages 


Loans 


Loans 


Number of Loan* 






















1 


TOO 


149 J77 


150,077 


Peer 




Nonmortgage 


AU 


2 


8,012 


725,939 


733,951 


Group 


Mortgages 


Loans 


Loazu 


3 


99,706 


3,305,107 


3,404,813 










4 


415,582 


7308,153 


8,223,735 


1 


52 


043 


4J95 










2 


568 


1Z257 


1237.5 


Total 


524,000 


11,988,576 


12312376 


3 


1,416 


15,869 


17,?ft5 










4 


762 


14774 


15,5.36 











Total 



2,798 



47,243 



50,041 



1 $337JO0 

2 $5,079378 

3 $25,429,948 

4 $26,993,262 



$6,038311 $6,375,811 

$24,076,241 $29,155,819 

$35,381,697 $60,811,645 

$51,020,282 $78,013,544 



Total $57340,088 $116316,731 $174356,819 
Average DoUai Amount of Loaiu 



Peer 
Group 


Mortgages 


Nonmortgage 
Loans 


All 
Loans 


1 
2 
3 
4 


$6,487 

$8,943 

$17,959 

$35,424 


$1390 
$1,964 
$77.10 
$3,453 


$1,451 
$2,273 
$3318 
$5,021 


Overall 
Average 


$20,672 


$2,466 


$3,484 



Peer group 1: less than $500,000 in assets 
Peer group 2; $500,000 to $2,000,000 
Peer group 3: $2 million to $10 million 
Peer group 4: over $10 million 



TABLE 7 

MORTGAGE AND NONMORTGAGE LENDING 

BY PEER GROUP ALL CREDIT UNIONS 

YEAR END 1991 

Number of Loans 



440 



TABLE 7 (cont) 
Total Dollar Amount of Loans 

Peer Nonmortgage 

Group Mortgages Loans 



All 
Loans 



$4^i;381 $292,602375 $2%,823,756 

$102,294;373 $2,073,713,983 $2,176,008,356 

$1,897,562,796 $10,636323,939 $12333386,735 

$10^45374,142 $23,747,120,434 $33,992,994376 

$12,249,952,692 $36,749,760,731 $48,999,713,423 

Average Dollar Amount of Loan* 



Peer 
Group 

1 
2 
3 
4 

Total 



Noiunortgage All 
Mortgages Loans Loai\s 



$6,031 

$12,768 
$19,032 
$24,654 

$23378 



$1,959 
$2357 
$3,218 
$3,041 

$3,065 



$1,978 
$2,965 
$3,681 
K134 

$3,916 



Peer group 1: less than $500,000 in assets 
Peer group 3: $2 nullion to $10 million 
Peer group 2; $500,000 to $2,000,000 
Peer group 4: over $10 million 



TABLE 8 

INTEREST RATES CHARGED ON SOME LOAN 
TYPES - YEAR END 1991 



Type of Average interest 
Loan rate charged by 

limited income CUs 

Unsecured 1432 

Used auto 12.40 
Fixed-rate 

first mortgage 10.61 
Closed-end 

fixed-rate second 1 Z 18 



Average interest 
rate charged by 

all CUs 

14.23 
11.82 

10.11 

11.12 



Delinquency 

Limited income credit unioi\s have a total delin- 
quency rate of 53 percent, 3.4 times the 1.6 percent 
rate experienced by all federally insured credit 
unions. The rate of charge-offe, net of recoveries, is 
1.6 percent of loans, orJy 2-3 times the average rate 
for all federally insured credit unions. Therefore, 
limited income credit uiuons are in better shape than 
one might think, based solely on the delinquency 
rate. 

Table 9 shows the comparisons between delin- 
quency rates and net charge-off rates for Umited 
income and other credit uruons. 



TABLE 9 

DELINQUENCY AND NET CHARGE-OFF 

RATES FOR LIMITED-INCOME AND 

ALL CREDIT UNIONS 

YEAR END 1991 



Limited 

income 

CUs 

Delinquency 

rate 53 

Net charge offs 1.6 

Deposits by Members 



All CUs 



1.6 
0.7 



Ratio of 

Limited income 

to all CUs 



3.4 times 
2.3 times 



Limited income credit unions rely more heavily on 
regular shares than do other credit uiuons: 54 
percent of their deposits are in regular shares, 
compared to 46 percent for others. Table 10 dis- 
plays the percentage distribution by type of share 
account for limited income credit unions compared 
to all credit unions, as well as dividends currently 
being offered. 

It is encouraging to note tfuit limited income credit 
unioi\s have aggressively lowered their dividends 
It appears that they have succeeded better in keep- 
ing up with the market as rates declined than did 
the mainstream credit uiuoiu. 



441 



TABLE 10 

DEPO SrrS BY TYPE OF SHARE ACCOUNT 

UMTTED INCOME CREDIT UNIONS COMPARED 

TO ALL - YEAR END 1991 



Percent DishribuHon 




Account 


Ltd. Inc. 


All 


IM Inc 


All 


Type 


CUs 


CU» 


CUs 


CUs 


Reg. shares 


54% 


46% 


4.60% 


5.16% 


Share certs. 


22% 


18% 


4.97% 


5.27% 


Money mrkt. 


9% 


10% 


4.20% 


4.99% 


Share drafts 


5% 


9% 


4,66% 


4.24% 


Nonmember 


5% 


0.1% 


4.60% 


- 


IRA/retir. 


4% 


15% 


5.61% 


5.77% 


Other 


1% 


1% 


- 


- 


Total 


100% 


100% 


. 


. 



Appendix V shows more infonnatian about account 

types. 

Deposits by Nomnemben 

Only 57 of the credit unions now designated as 
limited income have any nonmember deposits. 
These credit unions — which represent 37 percent — 
hold a total of 892 nonmember accounts, totalii\g 
$11,768^56, for an average nonmember account size 
of $13,187. Of the 57 credit unions, 19 have less than 
10 percent of their deposits from nonmembeis; 11 
have between 10 percent and 20 penxnt; while 25 
have over 20 percent, a condition that requites 
regional office approval 

Nonmember accounts are intended to hdp ccnnpen- 
sate for the fact that lower incoone households have 
limited ability to accumulate savings. In fact, as 
discussed previously, most are going to be found 
among the ranl^s of dissaveis. 

Besides providing a source of funds to lend, 
nonmember deposits were intended to enhance 
balance sheets by providing low cost funds. This 
appears to be a very slight benefit, if any. It b not 
loiown what the terms of these deposits are, but they 
should be structured as timed deposits requiring 
substantial notice of anticipated withdrawal. Rates, 
therefore, should be compared with those of certifi- 
cates. One-year certificates pay an avenge of 4.97 
percent at limited income credit unions, compared 
to 5.27 percent at other credit unions. Nonmember 
deposits earn 4.6 percent, resulting in a 'savings' of 



37 to 67 basis points — depending on the compari- 
son — on this 5 percent of deposits. This amounts 
to a reduction of only two or three basis points on 
the overall cost of funds. Note: all interest rates 
dted in this paragraph are rates paid on new money 
as of year end 1991. 

Some limited income credit unions report 
nonmember deposits as borrowings. This confusion 
even applies to funds from the Revolving Loan 
Fund, which some report as borrowings, while 
others report as nonmember deposits. The same 
confusion may hold for other sources of funds. 
Apparently, clearer examiner guidance is needed on 
this issue. 

A comparison of nonmember deposits with level of 
capital failed to show a convincing connection. 
Having more nonmember deposits cannot be said to 
result in higher capital In fact, those with 
nonmember deposits had capital of about 6 percent, 
compared to overall capital for limited income credit 
unicms of 7.7 percent It would be helpful to under- 
stand why this relationship exists. 

Income 

Limited iiKome credit unions generate good income. 
Their loan income averages 12.4 percent, compared 
to 11.4 percent for all credit imions. Investment 
income does not compare as favorably: for limited 
income credit unions it was 6.4 percent compared to 
7.1 percent for other credit unions. Most of this 
investment income effect is the result of the lower 
balances available to be invested. Comparing 
limited income credit unions to the second peer 
group — credit tmions with more than $500,000 and 
less than $2,000,000 in assets (this is the range the 
average limited income credit union falls into) — 
finds the limited income group doing very well. 
Peer group 2 averaged 6.0 percent income on its 
investments. 

Expenses 

Limited income credit unions have higher expenses 
than other credit unions. The following table shows 
how expenses are distributed by call-report line 
item, comparing limited income credit unions to all 
others and to peer group 2 credit unions. Peer 
group 2 has assets between $500,000 and $2,000,000 
In most areas, the limited income group spent more 
than the credit unions of comparable size and less 
than the "all" group. The notable exception i' 'he 



442 



provision for loai\ loss category, where the limited 
income group is much higher. 



TABLE 11 
OPERATING EXPENSE PERCENT DISTRIBUTION 
All CUs Peer 2 Low Incoone 



Employee Comp. 








and Benefits 


42.07% 


39.57% 


39.85% 


Travel and 








Corvferences 


1.34% 


1.35% 


1.91% 


Office Occupancy 


5.78% 


3.47% 


6.07% 


Office Operatior\s 


19.10% 


14.76% 


17.60% 


Educational and 








Promotional 


770% 


0.93% 


1.21% 


Loan Servicing 


2.82% 


1.57% 


1.76% 


ProfessioruJ, Outside 






Services 


6.50% 


5.77% 


6.29% 


Provision for Loan 








Losses 


1^59% 


1195% 


17.28% 


Provision for 








Invstnmt. Losses 


0.10% 


0.09% 


0.03% 


Member Insurance 


3.57% 


12.01% 


3.17% 


Operating Fees 


0.94% 


1.64% 


1.15% 


Misc. Operating 








Expenses 


3.01% 


5.87% 


3.69% 


Total Operating 








Expenses 


100.00% 


100.00% 


100.00% 



The next table compares the amount of die provision 
account to the net charge offs for limited income 
credit unioiu and all ottters. It shows that even with 
the relatively high level of this account, it is under- 
funded compared to other credit unions, where the 
provision account exceeds net charge offs. 



TABLE 12 

PROVISION FOR LOAN LOSSES COMPARED TO 
NET CHARGE OFFS 



Charge-offi 
Recoveries 
Net Charge-offs 

Provision accoimt 



Limited 

Income 

Credit uniotu 

$3,212,133 

S543J25 

$2.^68,808 

$2,527,605 



Ratio: Provisian 
account to net CO.S 



94.71% 



All 
Credit imioru 

$1,038,181,651 
$171,291,576 
$866390,075 

$990,289,283 



114.23% 



Limited income credit unions spet\d larger shares of 
their expenses on certain line items ai\d less on 
others. However, overall, their expenses are larger 
compared to either assets or income than A\e ex- 
penses for other credit unions. To get a feel for this 
effect, the percent distribution given in Table 11 has 
been expanded proportionately to reflect the percent 
of assets that expenses re pr es e nt for limited income 
credit uiucns ar\d two other groups of credit uiuoru. 

Table 13 shows the results, which make dear that 
limited income credit tmions spend a high percent- 
age of their assets on compeiuaticn. This is partly a 
problem of scale: the Peer group 2 credit miions 
spend almost as large a share of their assets. The 
greater experulitures en compensation are worth- 
while if they buy more expertise for dealing with the 
special problems of limited iiKome credit unions. 

It is predictable that a limited income credit uivion 
would sperul more en office operatiotu, because the 
small account aiul loan sizes increase operating 
costs. On die other hand, it is surprising to see 
limited income credit tmions spendii^g more on 
travei office occupancy, ar\d professional services. 



443 



TABLE 13 

OPERATING EXPENSE DBTRIBtmON 

Low Basis Points 
AllCUt Peer 2 Income of Difference 



Employee 
Comp. 
<c Benefits 154 


173 


217 


43 


Travel and 








Confs. 5 


6 


10 


4 


Off. Ocpncy 21 
Off. Oprtns. 70 
Ed. Ic Promo. 8 


15 
65 

4 


33 

96 

7 


18 

31 

3 


La Srvcng. 10 
Prof., Outsd. 


7 


10 


3 


Services 24 


25 


34 


9 


Prvsn for Loan 








Losses 46 


57 


94 


37 


Prvsn for 








Inv. Losses 











Member 








Insurance 13 


53 


17 


-35 


Operating 
Fees 3 


7 


6 


-1 


Misc Operating 
Expenses 11 


26 


20 


-6 


Total Operating 
ExpcRMS 367 


438 


544 


106 



Membership Potential 

Limited income credit unions have fewer members 
compared to the size of the field of membcnhip than 
do other credit unions. Limited income credit 
unions have an average of 12 percent of their field as 
members. All other credit unioru average 28 
percent Peer group 2 averages 30 percent member- 
ship from its field. The main reason that limited 
income credit unions display such low p enetr a tion 
of theix markets is that many of their charters are for 
a geographical area. Still, these are supposed to be 
areas where there is limited service by other deposi- 
tory institutions. 

It may be possible to strengthen limited income 
credit unions by iiu:reasing membership with a 
powerful marketing campaign. On the other hand, 
setting Interest rates commensurate widi a certain 
credit risk level selects a part of the market It 
appears unlikely that one institution can serve both 
middle- and upper-income households with good 
credit at the same time it meets the needs of lower 
income households who are more likely to have had 
credit problems. 



444 



445 



APPENDIX I 

The Credit Union Act and Regulations 
Regarding Limited Income Credit Unions 

The Federal Credit Union Act mentions lower 
income households three times. 

First, in Section lOl(S) (12 USC 1752(5)), in the 
definition of "member account", provision is 
made for non-member accounts in "credit 
unioru serving predominantly low-income 
members (as defiiied by the Board)'. 

Second, in the Powers section (Section 107(6), or 
12 USC 1757 (6)), the Act references these credit 
unions in giving the power "to receive from . . . 
non-members . . . payments ..." in accordance 
with other provisions. 

Third, finally. Section 120(f) (12 USC 1766(f)), 
authorizes the Board to "majce investigataons 
and to cotuluct researches and studies of the 
problems of persons of small means in obtaining 
credit at reasonable rates of interest . . " In this 
Section, the Act further authorizes reporting on 
such research and conductii\g experimental , 
developmental, aiui trairung projects related to 
promotii\g more effective operation of credit 
uiuons serving the poor. Not siivce 1971 has 
Congress appropriated any funds to cany out 
these activities. 



The Rules arul Regulations (Section 7D1.32) give 
regional directors the authority to give a credit 
uruon "low income" status, so that lum-member 
deposits up to 20 perceitf of shares may be insured. 
The regional director may grant the designation if a 
simple majority of a credit union's members: 

(1) have aiuiual incomes below the "lower level 
standard of livir^; classification as established by 
the Bureau of Labor Statistics atvj as updated by 
the Employment and Trainij\g Administration of 
the US. Department of Labor". The lower level 
statulard of living is set at 70 percoU of the 
median household income by household size, 

(2) live in public housir\g for which they qualify 
on the ba^ of income, 

(3) qualify as recipients in a community action 
program* or 

(4) are eiuoUed as full-time or part-time stu- 
dents. 

Part 705 of the Regulations ^Mdfies how the Re- 
volving Loan Fund is to be tised by credit uiuoiu 
which serve "predominantly low-income members". 



446 



APPENDIX II 
Limited Income Credit Unions by Region 



f)«9l on 



City 





UNIVERSITV SETTLEMENT 


NEW YORK 


NY 




ALLEN 


JAMAICA 


NY 




UNION SETTLEMENT 


NEW YORK 


NY 




CORNERSTONE BAPTIST CHURCH 


BROOKLYN 


NY 




0. EOMARO HELLS 


SPRINGFIELD 


MA 




TRANSFIGURATION PARISH 


BROOKLYN 


NY 




GOOD COUNSEL 


BROOKLYN 


NV 




NEED ACTION 


WATERBURY 


CT 




MULL MASS 


HULL 


MA 




BETHEX 


NEW YORK 


NY 




CEOC 


HEMPSTEAD 


NY 




COMMl/NITY ACTION ORG OF ERIE COUNTV 


BUFFALO 


NV 




ALTERNATIVES 


ITHACA 


NV 




NORTH BROOKLYN 


BROOKLYN 


NV 




SOUTH END 


BOSTON 


MA 




BROOKLYN ECUMENICAL 


BROOKLYN 


NY 




LOWER EAST SIDE PEOPLE S 


NEW YORK 


NY 




NORTHWEST BRONX COALITION 


BRONX 


NY 




SELF HELP WORKS 


NEW YORK 


NV 




MIO-BRONX COMMUNITY DEVELOPMENT 


BRONX 


NV 




VERMONT DEVELOPMENT 


BURLINGTON 


VT 




ST. PATRICKS SPAN6LER 


SPANGLER 


PA 




OOUOLAS MEMORIAL 


BALTIMORE 


MD 




LOCAL 25 i 32 AFL-CIO 


WASHINGTON 


DC 




METROPOLITAN BAPTIST CHURCH 


WASHINGTON 


DC 




L M P 


PHILADELPHIA 


PA 




MAHLON M LEWIS 


PHILADELPHIA 


PA 




JONES TABERNACLE 


PHILADELPHIA 


PA 




PARKY MARYLAND 


BALTIMORE 


MD 




SALEM 


JENKINTOWN 


PA 




RENTEX EMPLOYEES 


BALTIMORE 


MD 




EMMANUEL METHODIST 


PHILADELPHIA 


PA 




ZOAR METHODIST CHURCH 


PHILADELPHIA 


PA 




CALVARY NORTHEHN LIBERTIES 


PHILADELPHIA 


PA 




R T C 


PHILADELPHIA 


PA 




HOSPITALITY COMMUNITY 


WASHINGTON 


DC 




MCDOWELL COUNTY 


WILCOE 


WV 




PSA 


WILMINGTON 


DE 




NEWPORT NEWS NEIGHBORHOOD 


NEWPORT NEWS 


VA 




SOUTH BALTIMORE COMMUNITY 


BALTIMORE 


HO 




STO-ROX COMMUNITY 


MCKEES ROCKS 


PA 




ST. MARY'S COUNTV 


HOLLYWOOD 


MD 




HILL DISTRICT 


PITTSBURGH 


PA 




E.A.N.C. 


EASTON 


PA 




eORINOUEN 


PHILADELPHIA 


PA 




GREATER MORRISTOWN AREA 


MORRISTOWN 


NJ 




THE CERMANTOWN 


PHILADELPHIA 


PA 




HALIFAX COUNTY AND SOUTH BOSTON COM 


SOUTH BOSTON 


VA 




NEW KENSINGTON 


PHILADELPHIA 


PA 




FISHING BAY 


DELTAVILLE 


VA 




LA CASA FEDERAL CREDIT UNION 


NEWARK 


NJ 




NEW COMMUNITY 


NEWARK 


NJ 




BRICKS (NO COMMUNITY 


ENFIELD 


NC 



447 



R«glon N«m« 



City 



r 


tSERI* PARISH 


NEW IBERIA 


LA 




PIHEV GROVE COimuNITV 


SWAINSaORO 


GA 




SELKA-OALLAS COMMUNITY 


SELMA 


AL 




UNION 


FARMERVILLE 


LA 




CLEVELAND 


CLEVELAND 


MS 




FOURTH WARD 


AMITE 


LA 




FRIENDSHIP COMMUNITY 


CLARKSOALE 


MS 




FAS CHURCH 


SAVANNAH 


G* 




SHELBY 


SHELBY 


MS 




•HEAT STREET CHURCH 


ATLANTA 


CA 




LESTER ALABAMA 


LESTER 


AL 




AVENUE BAPTIST BROTHERHOOD 


SHREVEPORT 


LA 




ST. JAMES A M E CHURCH 


MIAMI 


FL 




ST JOHNS AME BIRMINGHAM 


BIRMINGHAM 


AL 




TULANE MEMORIAL BAPTIST CHURCH 


NEW ORLEANS 


LA 




LINCOLN COMMUNITY 


RUSTON 


LA 




TABERNALlE 


AUGUSTA 


GA 




ST. PAULS LAFAYETTE 


LAFAYETTE 


LA 




MACEDONIA BAPTIST CHURCH 


JACKSON 


TN 




NEJA 


MAR I ANNA 


FL 




NORTH GULFPOHT COMMUNITY 


GULFPORT 


MS 




DEMOPOL I S 


DEMOPOL IS 


AL 




INOIANOLA COMMUNITY 


INOIANOLA 


MS 




NINTH WARD 


NEW ORLEANS 


LA 




C 


CHARLESTON 


sc 




YORK CITIZENS 


YORK 


AL 




FIRST BAPTIST CMURCH OAKLAND 


JACKSONVILLE 


FL 






OLIVE HILL 


KV 






ZACHARV 


LA 




CENTRAL MISSISSIPPI 


WINONA 


MS 




UNIFIED SINGERS 


THOMASVILLE 


CA 




COLLEGE STATION COMMUNITY 


COLLEGE STATIONAR 




STEWART COUNTY 


LUMPKIN 


GA 




ISSAQUENA COUNTY 


MAYERSVILLE 


MS 




CLARKE COMMUNITY 


ATHENS 


GA 




ST. JOHN SELF-HELP 


RESERVE 


LA 




Putnam county 


PALATKA 


FL 




DARE COUNTY 


WAYCROSS 


GA 




P. A 


CROWLEY 


LA 




GREENE COUNTY 


STATE LINE 


MS 




STEPHENS COUNTY COMMUNITY 


TOCCO* 


GA 




B.O.N.D. COMMUNITY 


ATLANTA 


GA 




LAUDERDALE COUNTY 


MERIDIAN 


MS 




FOGCE 


EUTAW 


AL 




GRANT PARK-S.A.N.D. 


ATLANTA 


GA 




CHOCTAX 


PHILADELPHIA 


MS 




POC 


ST PETERSBURG 


FL 




CAST CENTRAL 


LOUISVILLE 


MS 




CENTRAL APPALACHIAN PEOPLES' 


BEREA 


KV 




OUITMAN COUNTY 


MARKS 


MS 




COMMUNITY TRUST 


APOPKA 


FL 




PR I CHARD 


PR I CHARD 


AL 




HOLY GHOST FAITH 


OPELOUSAS 


LA 



67-798 O— sa- 



ls 



448 



1 4p?'^»fe8g#lN*^J*^^-^^^'HiS^f -- 



g<g'''B'^w;5^ ajjl i ! BPiA j>--"--. -"t--- -^^3- 



city 



3 


SOUTH OKEECHOBEE COMM . DEVELOPMENT 


BELLE GLAOE 


FL 


3 


TRI-COUNTV 


AHOSKIE 


NC 


3 


BOWAN-IHEOELL AREA 


SALISBURY 


NC 


3 


ST. LUKE 


WINDSOR 


NC 


3 


CHOWAN 


EOEnTON 


NC 


3 


SELF-HELP 


DURHAM 


NC 


4 


ST. MARTIN OE PORRES PARISH 


CHICAGO 


XL 


4 


PUERTO RICAN SOCIETY 


WAUKEGAN 


IL 


4 


BETHEL BAPTIST 


OAYTON 


DM 


4 


ISRAEL METhCOMM 


CHICAGO 


IL 


4 


T U F 


CHICAGO 


IL 


4 


C T A F C 


CHICAGO 


IL 


4 


CAPITAL CITV 


COLUMBUS 


OH 


4 


HVS 


CHILLICOTHE 


OH 


4 


NORTH SIDE COMMUNITY 


CHICAGO 


IL 


4 


NEAR EASTSIOE COMMUNITY 


INDIANAPOLIS 


IN 


4 


AUSTIN/WEST GARFIELD 


CHICAGO 


IL 


5 


MARION COUNTY 


JEFFERSON 


TX 


5 


UNITED COUNTIES 


TAYLOR 


TX 


S 


KNIGHTS OF PYTHIAS »326 


DALLAS 


TX 


5 


INTERLAKES COMMUNITY 


MADISON 


SO 


S 


SISSETON-MAHPETON 


AGENCY VILLAGE 


SO 


S 


Chicanos POR la causa 


PHOENIX 


AZ 


5 


COMMON GROUND COMMUNITY 


DALLAS 


TX 


5 


FIRST AMERICAN 


WINDOW ROCK 


AZ 


5 


SCICAP 


LEON 


I* 


5 


UCB CREDIT UNION 


SALT LAKE CY 


UT 


6 


PEOPLES INO CHURCH 


LOS ANGELES 


CA 


6 


MISSION ARTS EMPLOYEES 


ASHLAND 


MT 


6 


O.U.R 


EUGENE 


OR 


6 


ISLA vista COMMUNITY 


ISLA VISTA 


CA 


6 


MISSION AREA 


SAN FRANCISCO 


CA 


6 


AMERICAN SAMOA GOVERNMENT EMPS. 


PAGO PAGO 


GU 


6 


DESERT - VALLE 


EL CENTRO 


CA 


6 


NORTHEAST COMMUNITY 


SAN FRANCISCO 


CA 


6 


FAMILY 


WILMINGTON 


CA 


6 


«ATT$ UNITED 


LOS ANGELES 


CA 



449 



v-flfs^sSjgssw^fe^ie^Tse 



'f /* r^ .^r:3^-i^ 



APPENDIX III 

Credit Unions that gained the Limited 
Income designation since 1987 

Newly designated in 1988 Years since chartered 



First American 


27 


Chinese Amencan 


16 


Am. Samoa Govt. Employees 


9 


Harrison County 


22 


EHS 


29 


Brooklyn Ecumenical 


6 


Northern Mame 


3 


Chicanos For La Causa 


6 


Lower East Side Peoples 


3 


Syracuse Neighborhood 


8 


Austin/West Garfield 


2 


SCICAP 


21 


U Casa FCU 


5 


Comm. Action Org. of Erie, PA 


12 


St. Martin de Porres Parish 


29 


Northwest Bronx Coalition 


2 


SeU-Help Works 


2 


Mt. Sinai Baptist CK 


3 


Newly designated in 1989 




Santa Cruz 


13 


Steel Parts 


37 


B.O.N.D. 


18 


Near Eastside 


9 


Indianola 


24 


Northwest Bronx Coalition 


3 


CTAFC 


22 


University Settlement 


50 


Mid-Bronx Comm. Dev. 


1 


North Manhattan 


4 


Newly designated ltd. inc. in 1990 




Corpus Chnsti 




D. Edward Wells 


12 


Vermont Development 


67 


Self Help Works 


24 


CTAFC 


18 


Ui\iversity Settlement 


03 


RTC (Russel Tabernacle Church) 


16 


Self Help 


8 


St Luke 


15 


Chowan 


50 


Tri-County 


23 



Newly designated in 1988 Years since chartered 

Southwest Germantown Assoc. 14 

SCICAP 23 

Rowan-Iredell Area 49 

Capital City 22 

Unified Singers 23 

New Kensington 8 

UCB(Utah Council) 16 



450 





rv 


^ 


--!s^)p^f'jiiyigS£Wjjj:jy.2^^ 


^g 


wm^m^ 


APPENDIX ] 


















Years since 


Credit Unions that lost the limited 


income 


Dropped in 1990 




chartered 


designation since 1987 that were 


Paul Cuffe 


L 


24 


merged, liquidated, or 


taken over 


Syracuse Neighborhood 


L 


9 


(Purchased and Assumed) 




Desire Area 


M 


24 








National Amer. Indian 


L 


4 




Years since 


North Hartford 


L 


44 


Dropped in 1988 


chartered 


DelU Valley 
Oidyapi 


M 

L 


22 
24 


West Philadelphia Commtinity 


M 


8 


A&S Employees 

Brag 

Telfair 


M 

L 
L 


32 
24 
20 


Franklin Community 
St. Regis Mohawk 


L 
L 


20 
9 


Hartford Avenue Baptist CK 


L 


10 








Continental Assoc, of Resolute 


L 


7 


Dropped in 1991 






Wyckoff Heights Hosp. Emp. 
Mobile Home Owners 


M 

M 


26 

5 


Northern Maine 


M 


5 


Greater Covington 

Mid City Southeast San Diego 

Royal Orleans Emp. 

Southern CA Service Station Assoc 


M 


19 


Carteret County 


M 


23 


L 

M 

. M 


4 

27 
3 


Long Beach Community 
NW Neighborhood 
Second Baptist Church 


L 
M 
M 


25 
13 
35 


Baden Ormond 


M 


36 


Goodwill Employees 


M 


37 


Lackawanna Laundry Empl. 
St. Peter Claver 


M 

L 


50 
24 


Lithonia 
Pilgrim Baptist 


L 
M 


23 
33 


Our Lady of Guadeloupe 
PAB 


L 
M 


27 
48 


St. John Bosco 
Ensley Neighborhood 


L 
M 


25 
22 


Mingo 

Sonlite Christian 


L 


20 


Guyton Commtmity 


L 


44 


L 


3 


Taborian 


L 


30 


Greater Mt. Olive Baptist 


L 


21 








Hopkins House Neighborhood 


L 


20 








Emanuel Institutional 


L 


23 








Dropped in 1989 












Hope-Corotudo 


M 


20 








Southside 


L 


11 








Allegheny W. Commuruty 


L 


8 








Central lUinois Chapter 


M 


8 








Citizens Coalition 


L 


11 








People's United 


L 


16 








St. Thomas Parish 


L 


42 








Nicholas Coimty 


L 


20 








St. Augustine Parish 


M 


56 








Santone 


M 


39 








SWS 


M 


24 








Cherokee 


M 


22 








MABC 


M 


8 








Council for Human Services 


L 


10 








Chase City 


L 


35 








Mt. GUead 


L 


30 








St. JohnsofDalworth 


L 


31 








Libertad 


L 


15 








Joint Community 


PA 


21 








John the Baptist 


L 


24 









451 



-rn jiSa'*"-."-" ■'*s «v;c ■ 



f ■■■->?i!?--'--:^ 



:-'»^iH^BB^1 7 



APPENDIX V 
Detailed infonnation on types and sizes of share accounts at limited income credit unions 
Number of Accounts 



Type of 


Peer 


Peer 


Peer 


Peer 


Total 


Account 


1 


2 


3 


4 




Share Drafts 


$600 


$579 


$5,132 


$6,982 


$13,293 


Regular Shrs 


$21,457 


$58,170 


$54,450 


$31,869 


$165,946 


Money Mkt shares 


$264 


$0 


$66 


$963 


$1,293 


Share Certificates 


$78 


$699 


$1,258 


$2,603 


$4,638 


IRA /Retirement 


S2 


$26 


$576 


$1,199 


$1,803 


Other 


$398 


$U46 


$2,260 


$2,455 


$6J59 


Non-member 


$37 


$U14 


$160 


$38 


$1,449 



Total 



$22,836 



$61,934 



$63,902 



$46,109 



$194,781 



Total Dollar Amount of Accounts 



ShareDrafts 


$95,886 


$390,274 


$4366,459 


$8,915,954 


$13,968373 


Regular Shares 


$9,517,523 


$31,785,728 


$57,192,919 


$40,156,655 


$138,652,825 


Money Mkt shares 


$126341 


$0 


$806,439 


$21,987,779 


$22,920359 


Share Certificates 


$552,744 


$7,049,874 


$16390376 


$31,417,688 


$55,610,682 


IRA /Retirement 


$24,480 


$23U28 


$2,764315 


$7,951,965 


$10,973,088 


Other 


$128330 


$116376 


$1,007340 


$1,769348 


$3,022394 


Non-member 


$1,036,030 


$6,203,862 


$3,127,677 


$1,400,988 


$11,768,557 


Total 


$11,481,834 


$45,778,442 


$86,056,025 


$113300377 


$256,916,678 



Detailed information on types and sizes of share accounts (continued) 



Average Outstanding Loan Balance 



Type of 


Peer 


Peer 


Peer 


Peer 


Total 


Account 


1 


2 


3 


4 




Share Drafts 


S160 


$674 


$890 


$1,277 


$1,051 


Regular Shares 


$444 


$546 


$1,050 


$1,260 


$836 


Money Mkt shares 


$479 




$12^19 


$22333 


$17,727 


Share Certificates 


$7,086 


$10,086 


$13,188 


$12,070 


$11,990 


IRA /Retirement 


$12,240 


$8,916 


$4300 


$6,632 


$6,086 


Other 


$324 


$94 


$446 


$721 


$475 


Non-member 


$28,001 


$5,110 


$19348 


$36368 


$8,122 



Total 



$503 



$739 



$1347 



$2,464 



$1319 



This is a study by NCUA's Department of Operations, Office of Examination and Insurance. Any views expressed do not 
necessarily reflect the views of the Board of the National Credit Union Admiiustration. 



452 



APPENDIX II 



COMMUNITY DEVELOPMENT CREDIT UNIONS 

PROGRESS REPORT 

AS OF JUNE 30, 1992 



As of June 30. 1992. NCUA identified 143 credit unions as community development credit unions 
(CDCUs). not including student credit unions. These credit unions have a total of S255.4 million in 
assets. 0. 1 percent of ail federally insured credit union assets. CDCUs showed growth of 5. 1 percent 
since the 1991 year -end Call Report. All credit unions grew 7.9 percent during that period. The 
average CDCU had SI. 8 million in assets compared to an average of $19.2 million for ail credit 
unions. ' 

Delinquency and Charge-ofTs Both Down 

Delinquency has dropped by 14 percent, from 6.3 percent to 5.5 percent. The average for ail credit 
unions has also dropped. Given the recessionary economic climate of the first half of the year, both 
declines are surprising, but that for CDCUs is more surprising. 

The drop in delinquency has not been purchased at the expense of higher charge-offs: the net charge- 
off account is also lower, down from 1.7 percent to 1.0 percent. Part of this decline Is seasonal, 
because CDCUs. being smaller, are more likely to charge-off loans at the end of the year, when they 
close their books. 

Equity Capital: Same Dollars, Lower Ratio 

In dollars, CDCUs held about the same amount of equity capital (regular reserves, other reserves, and 
undivided earnings) at the end of the period as the begiiming. Since assets grew, the equity capital 
ratio declined slightly, from 7.5 percent to 7.3 percent. For all credit unions, the average equity ratio 
is 7 7 percent. The ratios are so close because of the size distribution of CDCUs. This table compares 
equity ratios by peer group. 



EQUITY CAPITAL BY PEER GROUP 
CDCUs VERSUS ALL CREDIT UNIONS 

Peer Group CDCUs All CUs 

Less than $500,000 13.6 

$500,000 to 2 min 7.5 

$2 mln to 10 mln 6 5 

$10mJn to 20mln 7.1 

When comparisons are made by peer group, CDCUs are somewhat lower at each level. The peer 
group from $10 million to $50 million is the largest that contains any CDCUs. While capital Is lower 



13.7 


10.4 


8.8 


7.9 



The growth comparisons given do not malcb up with Research Study No. 17 because the mid-year 1992 
numbers are iniemally consistent, thai is, the 143 credit unions were compared with themselves six months earlier 
to calculate growth. Any credit union that was a CDCU at year end 1991 but not at mid-year 1992 was 
eliminated from the analysis. 



453 



than the average credit union, it still is adequate As a group, CDCUs need to focus on ensuring that 
growth in capital matches growth in assets. This will stabilize trends and ensure that this subset of 
credit unions remains strong. 



Income and Expenses 

Gross income is down from 10.9 percent of assets to 9.8 percent. This drop is comparable to the drop 
experienced by all credit unions: 10. 1 percent to 8.8. 

Operating expenses as a percent of average assets rose slightly, from 4 6 percent to 4.8 percent The 
same statistics for all credit unions are 3.3 percent at year -end and 3.2 percent for mid-year CDCUs 
will always have higher expenses than other credit unions, because average loan and account balances 
are low, and the membership tends to need expensive, labor intensive services such as check cashing 
and money orders. The higher level of delinquencies also makes for higher costs in the collection 
depanment Still, it is puzzling that operating expenses went up for CDCUs while declining slightly 
for all credit unions. 

An analysis of the number of workers and their pay sheds some light on the higher expenses 
experienced by CDCUs. For this analysis, the CDCUs will be compared to Peer 2 credit unions, all 
credit unions with assets between $500,000 and $2,000,000. The average CDCU has $1.8 million in 
assets, so it would be in the second peer group. The CDCUs report 205 full-time employees and 129 
pan-timers (25 hours per week or less). That works out to 1 .4 full-time employees and 0.9 part timers 
per credit union. For all Peer 2 credit unions, the average is 0.8 full-time employees and 1 .2 part- 
timers per credit union. To correct for differences in the sizes of credit unions, the number of 
employees per million dollars of assets was computed: it is 0.8 for CDCUs and 0.7 for all Peer 2 
credit unions. Therefore, CDCUs have 14 percent more staff for their size than other credit unions. 



Office of Examination and Insurance 
November 30, 1992 



^^^ 




454 
APPENDIX III 

NATIONAL CREOrr UNION ADMINISTRATION 
WASHINGTON. D.C. ZO'ASEi 



BOARD ACTION MEMORANDUM 

TO: NCVA 3card DATE: July 7, 15=1 

PROM: Chairrran, Ccrrrr.ur.ity Developmer.t SUBJ: Pilcc Prcgra.-. - 
Revclvir.g loan Prcgrai-n for Ccn-^.ur.i-v'rsvelc 

Credi: I'r.irr.s ' tner.c Crediz I'r.ic 

ACTION REQUESTED: Provide for a pilot program for ccT-.ur.ity 
dsvelop.T.er.i credit ur.ions wirrs rhe escablishmer.: of a CGiTir.irree 
review all ascecrs and operations, both internally and external 
related to oorrjr.i;nity development credit unions. 

DATE ACTION REQUESTED: July 28, 1992 

OTHER OFFICES CONSULTED: Office of General Counsel, Office of 
Exa.~inatio.". and Insurance, Office of Inspector General, 
a.-.d .^11 Regional Offices. 

VIEWS OF OTHER OFFICES CONSULTED: Concur 

BUDGET IMPACT, IF ANY: None 

RESPONSIBLE STAFF MEMBER: Ron Lewandowskl 

SUMMARY: 

.^fter IcoKing closely at Cor-.unity Oeveiopment Credit "nions 

CrC'Js for three years under the Coirrounity Development Revclvi: 
loa.n Program for Credit Unions, it has become apparent that a 
comprehensive review of CDC'J operations and NC'JA's related 
regulation and supervision program is in order. This proposal 
envisions a one year pilot program which would review Z2C" rela: 
regulations, supervision and chartering procedures, NCVA staff 
training, and the possible development of core staff familiar w: 
CrO" operations. The pilot program would also develop a mere 
detailed information base for use m analyzing key factors am.on: 
CCC'Js . The stated purpose of z'r.s pilot program is to eT.'r.a.T.zs 
MCVA's regulatory and super'/ision program as it relates to ZZZ'Ss 
and to improve the safety and soundness of CDCUs m ser-zing tnei 
eronom.ically disadvantaged communities. 

RECOMMENDED ACTION: Recomm.end t.-.at the NC'JA 3oard approve a ci. 
program with the establishment :: a committee, to be nar.ed wit.-.i 
15 days, to review all aspects ;f community developm.ent credit 
unions withm a one year ti.-e :ri.-e. - — -^ ,^ 



.-.airmar 



455 



BACXGROUMD 

The National Credit Union Administration is in its third active 
year of administering the Community Development Revolving Loan 
Program for Credit Unions (Part 705 of the NCUA Rules and 
Regulations) . During this period, it has become apparent that it 
is time to revisit some of the operational aspects of community 
development credit unions. This would include both external and 
internal reviews. 

This will be accomplished with the establishment of a committee 
that would oversee a pilot program covering a number of items 
discussed in this Board Action Memorandum. It is also being 
recommended that the duration of this pilot program be limited to 
one year with all recommendations/changes being in place at the 
end of that time. 

Items that would come under the purview of that committee would 
include the following: 

1 - An information base concerning the operational strengths and 
weaknesses of community development credit unions will be 
developed. It would be used by the credit union industry and by 
the National Credit Union Administration in developing and 
implementing policy and procedures in dealing with community 
development credit unions. 

2 - A review of the examiner training programs will be conducted 
to determine if the examiner staff is provided with sufficient 
diversity training to prepare them for the unique challenges they 
face in supervising community development credit unions. This is 
an issue that has been raised by the credit union industry and 
needs to be addressed. The results of this investigation would be 
shared with the responsible staff personnel and changes, if 
necessary, would be recommended. 

3 - A review of existing NCUA Rules and Regulations that are 
geared to community development credit unions will be conducted. 
This will include, but is not limited to the following; limited 
income designation; nonmember deposits; participation in the 
revolving loan program; and similar items. This process will 
also call for comments from the credit union industry. 

4 - A cadre of NCUA staff who have a greater knowledge and 
understanding of community development credit unions will be 
developed. The first step ir. i.-.is process took place during zr.^ 
last application period for c.'-.e revolving loan program when 
regional liaisons were appoiniiec: and met with community 
development credit unions as part of the loan award process. 



456 



5 - A review of NCUA chartering policies, as they relate to 
community development credit unions, the examination and 
supervision of those credit unions, as well as the use of special 
assistance to improve their survivability will be undertaken. 
Community development credit unions hold that by their very nature 
their operations are somewhat different than those of most natural 
person- type credit unions. It is their belief that the regulator 
needs a better understanding of CDCU operations and to provide 
more flexibility in the examination process. One of the goals of 
this pilot program will be to examine such claims as to validity 
and to make recommendations for chcuige if necessary and 
appropriate. 

It is intended that all review and any subsequent changes be fully 
completed one year from the date of the NCUA Board approval . 



457 



APPENDIX IV 



56868 



Federal Register / VoL 57. No. 231 / Tuesday, December 1. 1992 / Proposed Rules 



Comisel. 999 E Street. NW., 
Washington. DC 20483. (202) 219-3690 
or loll (ree (8001 424-4S30. 
Dated. NovemlMr 24. 1992. 
Iota D. Aikana. 

Chairman. Federal Election Commission. 
IFR Doc 92-29005 Filed 11-30-92. 8:45 ami 
wjjNO COM fr<t-ei-M 



NATIONAL CREOfT UNION 
ADMINISTRATION 

12 CFR Parts 701 and 70S 

Communtty Oawlopinant Revolving 
Loan Program for Credit Unlona 

agency: National Credit Union 
AdmuiistTation (NCUA). 
ACTION: Proposed rale. 

SUMMARY: Certain regulaticiu of the 
National Credit Union Administration 
govern loans nude from a revolving 
loan fund and technical assistance 
offered to certain low-income credit 
unions. The NCUA Board is proposing 
to modify these tegulatiocs to make the 
Community Development Revolvtng 
Loan Program ("Program'T more 
accessible to credit unions. The NCUA 
Board is also proposing technical 
amendments to other regulatory 
provisions to conform them to the 
revised Program regulations. 
DATES: Comments must be received by 
February 1. 1993. 

ADDRESSES: Send comments to Becky 
Baker. Secretary of the Board, National 
Credit Union Administration. 1776 G 
Street. NW.. Washington. DC 20456. 
FOR FURTXCn INFORMATION COMTACT^ 
Michael J McKeima. Staff Attorney, 
OfSce of General Counsel, at the above 
address or telephone: (2021 e82-W3a 
SUPPLEMBfTARyi 



Background 

The NCUA Board, ai part of Ua 
ongoing program of regulatory review, i* 
proposing to reviae tha ngulatioa undv 
which the Community DavelopmoDt 
Revolving Loan Program operataa. fai 
1979. Congress appropriated $8,000,000 
to the (Community Developmant Credit 
Union Revolving Loan Fund ("Fund"). 
Various agencies administered tha FuJad 
imtil November of 1986, when Congress 
transferred the Fund and the authority 
to administer it to the NCUA. To 
implement the Program, the NCUA 
Board published a final rule on 
September 16. 1B87 (52 FR 34891). The 
Enal regulation set forth, among other 
things, the scope and purpose of the 
Program. appUcation procedures, types 
of activities participating credit tmions 



can perform, and the procedure for 
disbursing and collecting loans. The 
purpose of the Program Is to make 
reduced rate loans and provide 
technical assistance to both federal and 
state-chartered credit unions serving 
low-income communities so that those 
credit unions may provide needed 
financial services and help to stimulate 
the economy In the communities served. 
Although there have not been any major 
problems with the Program, the Board 
believes there are several areas that can 
be improved. 

The NCUA Board is proposing to 
modify the Program for the follovhng 
reasons: First, to increase the number of 
participating credit unions: second, to 
make tne Program more accessible to 
participating credit unions: third, to 
provide technical assistance to 
participating credit unions that may not 
necessarily receive loans: and finally, to 
reduce regulatory burden. 

Section-by-Sectfani Anatyiia 

This analysis sets foitii all proposed 
changes to the current regulation. 

Section 705.0— Appiicability 

Nodiangea. 
Section 705.1— Scope 

The currant SS 70S.l(b) (2) and (3) 
have been comhineri into S TOS.llbHZ) to 
eliminate redundancy and the current 
$S 705.1(b) (4) and (5) have bean 
renumbered $S 70S.l(b) (3) and (4). 
respectively. 

Section 70S^—Purpo*e of the Pmgiam 
A (tatement has been added regarding 
NCUA's policy to lerolre Pngram 
funds to qualifying czedit uniooa aa 
often as practical in aider to gain 
in«v<TT>iim acoooaiic impact on ai many 
participating credit uniona a* poasibla. 
This language was previously loCBtad In 
i 705.7(cHl). A refeianoa to technical 
assistance has been added to (his 
section. 

Section 705.3— OefinitionM 

The cmrent $ 705.3 defines a 
"participating credit union" in part at a 
state- or tederally chartered credit union 
that is spedBcaliy involved in 
stimulation of economic de v elopment 
activities and community revitaJizatian 
efforts aimed at bmefitiiig the 
commimity It nrvea, and wbose 
membership meets the definition of 
"predominantly" and "low-income 
pemben" as ftmnd in paragiaphs 
701.32 (d)(2) and (d)(3) of the NCUA 
Regulations. Section 701.32(d)(2) 
defines low-mcoma members in part as 
those membera wbose annual Income 
falls at or below the lower level 



standard of living classification as 
established by the Bureau of Labor 
StaUstlcs. Section 701.32(d)(3) defines 
predominantly as a simple majority. 
This proposed section revises the 
definition of a "participating credit 
union" as well as provides a new 
definition of "low-income members." 
Accordingly, this proposed section has 
been divided into two subparts. 

Proposed paragraph (a) defines "low- 
income members." As stated above, the 
current definition of low-income 
members is only found In 5 701 32(d)(2). 
The definition now appears in both part 
70S and S 701.32. In order for a credit 
union to participate in the Program, it 
must serve predominantly low-income 
members. Predominantly still means a 
simple ma|ority. Under the proposal, 
low-income members %voula be defined 
by either individual wage of members or 
household income of the geographic 
service area. A credit union can 
demonstrate that it predominantly 
serves low-income members either by 
documeolation for the Individual wage 
definition or geographic area for the 
household Income aefinition- 

The fint method of defining "low 
income members" is based on an 
individual's wage and varies from the 
currant definition in four wavs First 
instead of focusing on bousenold 
income under the current definition, it 
looks only to the individual member's 
wages. Second. the "70 percent" 
standard which was Implicit in the 
'Lower Level Standard of Living" of the 
current definition has been made 
explicit and raised to 30 percent. Third. 
the national income standard has been 
changed from a median to an average. 
This change will raise the standard and 
therefore include more credit unions. 
Last. In applying this standard, regional 
directors snail make allowances for 
geographical areas with a higher cost of 
Uving. 

The first change is intended to ease 
the documentation burden on credit 
unions: It is easier to document the 
wages of members than their household 
incomes. The remaining rhanga* are 
intended to permit more financially 
soimd credit unions to meet the low- 
income definition without unduly 
diluting the focus of the Program. NCUA 
will obtain the year-end average weekly 
earnings statistic from the Bureau of 
LaborStaUstics, United States 
Department of Labor, and disseminata it 
to '^e regions and interested credit 
unions in the first quarter of each year. 

The second method of defining low 
income members" is similar to the 
current definition and is based on 
household income. However, it should 
be easier to document since a credit 



458 



Federal Register / Vol. 57. No. 231 / Tuesday. December 1. 1992 / Proposed Rules 



36869 



union can rely on the household income 
of a geographic area to demonstrate that 
the credit union serves low-income 
members. If a credit union can show it 
serves a geographical area with median 
household income below 80% of the 
national median, it could be classified 
as a low-income credit union. In 
applying this standard, regional 
directors shall make allowances for 
geographical areas with a higher cost of 
living. NCU.\ will provide a 
determination of a geographic area's 
median household income upon request 
cf any cred.t union seeking a low- 
income designation. 

NCLW estimates that an additional 
100 credit unions will be eligible for a 
low-mcome designation based on the 
two standards set forth above. Credit 
unions that already have a low-income 
designation from NCXJA need not 
reapply. Such credit unions will be 
grandfathered under this regulation. 

However. NCUA may review a credit 
unions low-income designation during 
the examination process to ensure that 
the credit union continues to serve 
predominantly low-income members. 

Paragraph (d) defines a ""participating 
credit union." The proposed definition 
is an expansion of the current rule. It 
allows credit unions that do not receive 
a loan but have the low-income 
designation to receive technical 
assistance under the Program. Currently, 
technical assistance is only available to 
those credit unions that have Program 
loans. However, a credit union needs to 
submit an application and be selected 
for participation in the Program to 
receive either a loan or technical 
assistance, or both. A newly chartered 
limited-income credit union may apply 
to participate in the Program. Under the 
current regulation, credit unions 
chartered for two years or less could not 
participate in the Program. As under the 
current regulations, student credit 
unions do not quahfy for participation 
m the Program. 

Section 705 4 — Program Activities 

All but the first two sentences in this 
section are eliminated. This change 
eliminates the list of services 
participating credit unions can provide. 
This should provide credit unions with 
increased flexibility on what services to 
offer to their members and also reduce 
unnecessary regulatory burden. A 
participating credit union's focus 
should be basic member share account 
and loan services- 
Section 705.5 — Applications 

This section sets forth the application 
procedures for those credit unions 
wishing to receive a loan or technical 



assistance. The address in paragraph (a) 
for obtaining the application is 
eliminated smce NCUA will be located 
at a different address in late 1993. 

Paragraph fb) discusses the 
information to be contained in the 
application for a loan. The words "for 
a loan" ere added to clarify that this 
information is not necessary for a 
request for technical assistance. The 
application for a loan or technical 
assistance can be obtained from NCUA. 

The requirement for the submission of 
financial information (balance sheet, 
income and expense statement, and 
delinquent loan list) found in current 
§ 705-5(b)(l) has been deleted for 
federally insured credit unions since 
this information is easily attainable by 
NCUA. Non-federally insured credit 
unions will still have to meet this 
requirement. Proposed § 705.5(b)l3) 
clarifies that the information concerning 
the credit union's field of membership 
onlv applies to state-chartered aedit 
unions since NCUA already has the 
information for federal credit unions. 
The reference to the NCUA Regional 
Director in the current 
§ 7a5.S(b)(3}(iO(B} has been removed 
since this subparagraph would only 
apply to slate-chartered, federally 
insured credit unions. Proposed 
S 705.5(b)(5) only requires a credit 
union to indicate its involvement in 
existing community development 
programs. This replaces the current 
requirement that a credit union explain 
how it will cooperate with existing 
community development proCTams. 

Although not contained in me current 
regulation, current policy permitting a 
credit union to apply for a low-income 
designation under § 701.32(d). while 
simultaneously submitting an 
application for a loan or technical 
assistance, will conbnue. However, 
assistance will not be approved until the 
designation is received by the credit 
union. 

A denied applicant's appeal right to 
the NCUA Board is not stated in the 
current regulation. Paragraph (c) has 
been amended to explictUy state this 
right to an appeal. 

Section 705.6 — Community Needs Plan 

The title of this section has been 
changed from community development 
committee to community needs plan. 
The NCUA Board continues to believe 
that a community needs plan is 
necessary to successfully implement the 
fostering of economic growth in the 
affected community Tne proposed rule 
eliminates the requirement for a 
community development committee. 
NCUA believes this committee may 
impose an unnecessary burden on credit 



unions. In most partiapating credit 
unions, the officials will serve as the 
core group to develop a community 
needs plan. Therefore, the responsibility 
for the development of a community 
needs plan will be in the hands of the 
board of directors. The plan itself has 
not been changed from the current rule 
However, instead of submitting the plan 
60 days after qualifying for a loan, the 
proposal requires the submission of the 
plan with the loan application. NCUA 
Mlieves it IS necessar>' for a credit 
union to determine the needs of the 
community prior to seeking a loan to 
meet those needs. The requirement that 
the members be briefed on the 
implementation of the community 
needs plan has been retained but the 
responsibility for the bnefing has been 
shifted to the board of directors. 
Furthermore, a requirement has been 
added for the credit union to submit the 
written report or a summary of the 
bnefing to NCUA. This will enable 
NCUA to assess the progress of the 
credit union in meeting the goals of the 
community needs plan. The paragraphs 
have been relabeled (a) and (b) to 
conform to the above cited changes. 

Section 705 7— Loans to Participating 
Credit Unions 

This section addresses the procedures 
for disbursing and collecting loans. In 
paragraph (a), the loan limit has been 
raised ft'om $200,000 to $300,000 to 
accommodate specific needs for larger 
loans or an increase in Fund 
appropriation. Also in paragraph (a), the 
phrase "funds availability" has been 
added to the criteria for receiving a loan. 
This clarifies that otherwise qualified 
applicants may not receive a loan if all 
of the loan funds have been otherwise 
committed or distributed. In paragraph 
(b)(1), the words "at least" have been 
removed from the discussion on the 
matching requirement. This change 
clarifies that credit unions only have to 
increase shares by the loan amount; 
there IS no requirement that credit 
unions go beyond the one-for-one 
match. The last sentence in § 705 7(cl{l) 
concerning NCUA revolving Program 
funds has been moved to §705 2 for the 
previously discussed reasons The rest 
of § 705.7 is unchanged. 

Section 7058 — State-Chartered Credit 
Unions 

No changes proposed. Comment is 
requested on whether this section is 
necessary. 

Section 705.9 — Application Penod 

In the first sentence of this section, 
the word "annually" has been added to 
clarify that NCTUA will provide a notice 



459 



56870 Fedsral B«gi»««T / VoL 57, No. 231 / Tuesday. Decamber 1. 1992 / Propoied RuJe5 



once a year setting forth (he application 
period The notice wijl also itate 
whether funds aie available for loans. 

Section 705 1(>— Technical Assislann 

Receipt of a Program loao is no loiiger 
a prerequisite to receiving technical 
assistance In the first sentence of tiiis 
section, the word "will" is changed to 
"may" for clariGcalion. In the same 
sentence, the term "outside provider" 
has been pluialized to clanfy that there 
may be more than one provider of 
technical assistance. In the final 
sentence, the words "spent on" have 
been replaced by "set aside for." Thi» 
will enable the Program Chairman to 
roll over unspent funds for technical 
assistance to the next fiscal year. 

The NCUA Board is also requesting 
comments on the following specific 
issues relating to the Program: 

(II Is the proposed deSnition of a low- 
income member satisfactory? 

(2) Should the term "low-uicome 
credit union" found in § 705.3 be 
changed to either "economic 
development credit union" or 
"community development credit 
union"? Comment is requested on a 
possible name change because NCUA 
staff believes that the current term may 
have negative connotations for many in 
the credit union community. We note 
that community development credit 
union is the name used to identify 
members of a particular trade 
association. 

(31 Should the matching requirement 
be cut in half if the share mcrease is 
entirely member deposits (e.g.. if a 
credit uiuon receives a 5100.000 loan, it 
would only have to increase sharas by 
S50.0O0 if the increase is due entirely to 
member deposits rather than 
nonmember deposits)? 

(4) b it desirable to have uniform 
treatment of booking the loan? Cunsntiy 
the loan can be booked as a note- 
payable or a nonmember deposit at 
NCU.\'5di5Cietion. 

(5) If the answer is afSimative to 
question number 4. should the loan be 
treated as a note-payable or a 
nonmember deposit by the credit union? 

(B| Should a credit union be required 
to submit its latest financial statement 
when applying for a loan, technical 
assistance or an exemption from the 
nonmember deposit limitation? 

We have previously requested 
comment (see 52 FR 12427. April 16. 
1987. and 52 FR 34891. September 18. 
19871 on whether Program loans should 
be booked as a note-payable, 
nonmember deposit, or either of the two 
at NCUA's option. In general the 
commenters preferred that the deposits 
be recorded as a nonmember deposit. 



The reason the cominealen gave for 
recording the loan as a nonmember 
deposit rather than a loan was that 
federal credit imions are subject to a 
borrowing limitation of 50% of paid-in 
and unimpaired capital and surplus. 
The commenters did not want Program 
loans to be subject to the 50% 
limitation. Since some state-chartered 
participating credit unions may not be 
permitted to record loans as nonmember 
deposits. NCUA retained the discretion 
on how the loan should be recorded, 
although it was anticipated that most 
loans would be recoraed as nonmember 
deposits. 

Section 70J .32— Payments on Shares by 
Public Units and Nonmembers. and 
Low-income Designation 

The NCUA Board is also proposing 
amendments to § 701 J2 to conform it to 
the proposed changes in part 70S. 
Further. NCUA is proposing a technical 
amendment to this section to provide 
clarification and reduce regulatory 
burden. Section 701.32 requires that 
credit unions that want to accept more 
than 20% in nonmember deposits 
obtain approval from their Regional 
Direaor. All FCUs can accept 
nonmember deposits bom other credit 
unions and public units. FCUs with a 
low-income designation can accept 
nonmember deposits from any source. 
This 20% Limit applies to FlSCU's as 
well (see i 741.6). Currmt S 7D1.21(d)(l) 
requires an annual nview of for the 
low-income detigoation. The NCUA 
Board believes that an annual review is 
unnecessary, and tbetafore the proposal 
eliminates this requirament. However, a 
Regional Director may still review the 
designation whenever drcumstaiices 
warrant. 

The term "low-Income member" 
found in S 701.32(d)(2l has beao 
changed to conform to the new 
definition of "low-Income member" 
found in part 705. The only difference 
from the definition found in part 70S is 
that this proposed definition ciKitinoes 
to include those members who are 
enrolled as full-time students or part- 
time students in a college, university, 
high school, or vocational school 
Although student Federal credit unions 
are "low-income aedit unions" for 
purposes of receiving nonmember 
deposits, they do not qualify for 
participation in the Program. 

Pape r wo rk Reduction Act 

The Office of Management and Budget 
has approved the coUedioo 
requirements contained in part 70S of 
NCUA's Regulations (OMB Na 3133- 
0109). The proposed ameodmant 
rediices the paperwork requiiemants. 



Regulatory Flaufaility Ad 

The Regulatory Flexibility Act 
requires the NCUA to prepar* an 
analysis to describe any significant 
economic impact a proposed regulation 
may have on a substantial number of 
small credit unions (primarily those 
under $1 million in assets). The 
proposed rule is less restrdive than the 
current regulation. Overall, the NCUA 
Board expects the change lo benefit 
credit unions by permitting them easier 
eccess to loans and technical assistance. 
Accordingly, the Board determines and 
certifies that this proposed rule does not 
have a significant economic impact on 
a substantial number of small credit 
unions and that a Regulatory Flexibihty 
Anal)-sis is not required. 

Execotive Order 12612 

Executive Order 12612 requires 
NCUA to consider the effect of its 
actions on state interests. The Program 
is implemented in its entirety by ttie 
NCUA. The proposed amendment 
would make it easier for all credit 
unions participating in the Ingram, 
including state-chartered credit unions, 
to t«ceive loans and technical assistance 
and would not have a substantial direct 
effect on the states, on the relationship 
between the national government and 
the states, or on the distribution of 
power and responsibilities among the 
various levels of government- 
List of Sobiects 
J2 era Part 701 

Credit unions. Low-income 
designation. 

12 CFB Part 70S 

Community development. Credit 
unions. Loan progrBms-housing and 
community development Reporting and 
recordkeeping requirements. Technical 
assistance. 

By the National Credit Union 
Administration Board on November 12. 1992. 
Becky Baker. 
Secretary of the Board. 

Accotdingly. NCUA proposes to amend 12 
CFK part TQl lad levisa 13 CFR pan 705 m 
follows: 

PART 701— ORQANIZATION ANO 
OPERATION OF FEDERAL CREOtT 
UNIONS 

1. The authority citation lor part 701 
continues to read as follows: 

Authority: 12 U.S.C. 1752(5). 175o. 17St. 
1757. 1758. 176ta. 17611). 1766. 1767, 1782. 
1784, 1787 and 178«. Section 701.6 is also 
authorlzad by 31 U.S.C 3717. 

SectloQ 701.31 is also luthorized bv 1 5 
use 1601 « wq . 41 use 1861 and 42 
use 3801-3610 



460 



Federd Register / Vol. 57. No. 231 / Tuesday. December 1, 1992 / Proposed Roles 



56871 



2. It is proposed that % 701.32 be 
amended by rsvismg paragraphs (b), (c). 
and (d) to read as follows: 

1 701 .32 Paynwnt* on aharae by pubHe 
unit* and nonnwmbara. and lew-tneonM 
daaignatlon. 

(a)' • • 

(b) Limitations. [1) Unless a greater 
amount has been approved by the 
Regional Director, the maximum 
amount of all public unit and 
nonmember accounts shalJ not, at any 
given time, exceed 20% of the total 
shares of the federal credit union. A 
federal credit union seeking an 
exemption from the 20% limit must 
submit to the Regional Director t 
written request including: 

(i) The ne\v maximum level of public 
unit and nonmember shares requested. 
either as a dollar amount or a percmtaga 
of total shares: 

(ii) A plan concerning use of public 
unit and nonmember shares that 
includes: 

(A) A statement of the credit union's 
need and intended use of additional 
public unit and nonmember shares; 

(B) Provision for matching maturidM 
of public unit and nonmember shares 
with corresponding assets, or 
justification for any mismatch: and 

(C) Provision for adequate income 
spread between public unit and 
nonmember shares and corresponding 
assets. 

(Hi) A copy of the credit union's loan 
and investment policies: 

(2) Where the financial condition and 
management of the credit union are 
sound and the credit union's plan for 
the funds is reasonable, there will be a 
presumption in favor of granting the 
request. When granted, exemptions will 
normally be for a two-year pedod. The 
Regional Director will provide a written 
explanation for an exemption that is 
granted for a lesser time period. 

(3) The Regional Director wHl provide 
a written determination on an 
exemption request within 30 rjilendar 
days after receipt of the request. The 30- 
day period will not begin to run until 
all necessary information has been 
submitted to the Regional Director. All 
denials may be appealed to the NCUA 
Board in a timely marmer. Appeal* 
should be submitted through the 
Regional Director. 

(4) Upon expiration of an exemption. 
nonmember shares currently in the 
credit union in excess of the 20% of 
total shares will continue to be insured 
by the National Credit Union Share 
Insurance Fund within applicable 
Insurance limit*. No new share* In 
excess of the 20% limit shall be 
accepted. Existing share certifiota* in 



excess of the 20% limit msy remain in 
the credit union only until maturity. 

(c) The limitations set forth in this 
section do not apply to accounts 
maintained in accordance with § 701.37 
(Treasury Tax and Loan Depositaries: 
Depositaries and Financial Agents of the 
Government) and matching funds 
required by S 705.7(b) (Community 
Development Revolving Loan Program 
for Credit Unions). Once a loan granted 
pursuant to pari 705 is repaid, 
nonmember share deposits accepted to 
meet the matching requirement are 
subject to this section. 

(d) Designation of low-income status. 
(1) Section 107(6) of the Federal Credit 
Union Act (12 U.S.C. S 1757(6)) 
authorizes federal credit unions serving 
predominately low-income members to 
receive shares, share drafts and share 
certificates from nonmembers. In order 
to utilize this authority, a federal credit 
union must receive a low-income 
designation from its Regional Director. 
The designation may be removed by the 
Regional Director upon notice to the 
federal credit union if the definitions set 
forth In paragraphs (d)(2) and (3) of this 
section are no longer met. Removals 
may be appealed to the NCUA Board in 
a timely manner. Appeals should be 
Buhmltted through the Regional 
Director. 

(2) The term low-income members 
shall mean those memben who make 
less '►"■" 80 percent of the average for 
all wage earners as established by the 
Bureau of Labor Statistics or those 
memben whose annual income falls at 
or below 80% of the median household 
income for the nation. 

(i) In documenting Its low-Income 
membership, a credit union that serve* 
a geographic area when a majority of 
residents tail at or below the annual 
income standard is presumed to be 
serving predominantly low-income 
member*. In applying the standards. 
Regional Directora shall make 
allowances for geographical areas with 
higher costs of hvmg The following Is 
the exclusive list of geographic areas 
with the diSerenbals to be used: 

HawaU 40% 

Alaska J8» 

Waihiagton. D.C ™ 19% 

Boston - - 17% 

San Diego 1S% 

Lot Angelas — 14% 

New York 13% 

San Francisco — 13% 

Snttle — 10% 

Chicago _ - - 7% 

Phlladslphla - _. T% 

(ii) The tenn low-income member also 
include* thoae memben who are 
enrolled as full-time or part-time 



students in a college, university, high 
school, or vocational school. 

(3) The term predominantly is defined 
as a simple majority. 

3. It is proposed that Pan 705 be 
revised to read as follows: 

PART 70*-COMMUNrrY 
DEVELOPMENT REVOLVING LOAN 
PROGRAM FOR CREDIT UNIONS 

S<c 

70S.a AppUcability. 

705.1 Scope. 

705.2 Purpose of the program. 

705.3 Definitions. 

705.4 Program activities. 

705.5 Application for paniclpation. 

705.6 Community needs plan. 

705.7 Loans to participating credit unloos. 
70S.6 State-chartered credit unions. 
705.9 Application period. 

705 10 Technical assistance. 

Authority: Pub. L 97-35. 42 U S C 9822: 
Pub. L 99-609, note to 42 U S C 9322: Pub. 
L 101-144. 12 use 1766(U. 

|70$.0 Applicability. 

Monies from the Community 
Development Revolving Loan Fund for 
Credit Unions are governed by this 
regulstion. 

f70S.1 Scop*. 

(a) This pari Implements the 
Community Developments Revolving 
Loan Program for Credit Unions 
(Program) under the sole administration 
of the National Credit Union 
Administration. 

(b) This part establishes the following- 
(l)Definidons: 

(2) The application process and 
requirement* for qualifying for a loan 
under the program: 

(3) How loan funds are to be made 
available and their repayment: and 

(4) Technical assistance to be 
provided to participating credit unions. 

|70U PutpoM e( the pragrani. 

(a) The Community Development 
Revolving Loan Program for Credit 
Unions is intended to support the efforts 
of participating credit unions through 
loans and technical assistance to those 
credit tmions in: 

(1) Providing basic financial and 
related service* to r«*idents in their 
communitie*: and 

(2) Stimulating economic activities in 
the communitie* they service which 
will result in increased income, 
ownership and employment 
opportunides for low-income residents, 
and other community growth efforts 

(b) The policy of NCUA is to revoU e 
loan fund* to qualifying credit unions as 
often as practical in order to gain 
maximum economic impact on as miny 
participating credit unions as possible 



461 



96872 Federal Regiiter / Vol. 57. No. 231 / Tuesday, December 1. 1992 / Proposed Rules 



fTOSJ (MlnMens. 

(a) The term low-income members 
shall mean those members who make 
less than 80 percsnt of the average for 
all wage earners as established by the 
Bureau of Labor Statistics or those 
members whose annual household 
income falls at or below 80% of the 
median household income for the 
nation. In documenting its low-income 
membership, a credit union that serves 
a geographic ar«a where a majority of 
residents fall at or below the annual 
income standard, is presumed to be 
serving predominantly low-income 
members. In applying the standards. 
Regional Directors shall make 
allowances for seographical ar«a5 with 
higher costs of living. The following is 
the exclusive list of geographic areas 
and the differentials to be used: 

Hawari 40% 

Alaska 36% 

wasnington, O.C _ 19% 

Boston 17% 

San Diego „ 15% 

Los Angelea „ 14% 

^4•w Yo<1< 13% 

San Frandsco _ 13% 

SaatH* 10% 

OMcago _- 7% 

Ptuiadeiphia 7% 

(b) For purposes of this pert, a 
"participating credit union" means a 
state or federally chartered credit union 
that is specifically involved in 
stimulation of economic development 
activities and community revitalization 
efforts aimed at benefiting the 
community it serves; whose 
membership consists of predominantly 
low-income members as defined in 
paragraph (a) of this section or 
applicable state standards as reflected 
by a current designation as a low- 
income credit union pursuant to 

$ 701.32(d)(1) of this chapter: and has 
submitted an application for a loon and/ 
or technical assistance and has been 
selected for participation in the Program 
in accordance with this part 

1705.4 Program •»)«•«••. 

In order to meet the objectives of the 
Program, a credit union applicant 
should provide a variety of financial 
and related services designed to meet 
the particular needs of the low-income 
community served. These activities 
shall include basic member share 
account and member loan services. 

1705.5 AppUeaUon for participation. 

(a) Applications to paitlcipats and 
qualify for a loan or technical assistance 
under the Program may be obtained 
from the National Creolt Union 
Axiministration. Commtmlty 



Development Revolving Loan Program 
For Credit Unions. 

(b) The application for a loan shall 
contain the following information: 

(1) Information demonstrating a 
sound financial position and the credit 
union's ability to manage its day-to-day 
business affairs. Non-federally msured 
credit unions must include the 
following for the most recent month-end 
and each of the twelve months 
preceding that month-end: 

(i) Balance sheet; 

(ii) Income and expense statement: 

(iii) Delinquent loan list. 

(2) Evidence that the credit union has 
a need for increased funds in order to 
improve financial services to its 
members. 

(3) The following information 
concerning a state-chartered credit 
union's field of membership: 

(i) Current field of membership as set 
forth in the credit union's charter. 

(it) Changes, if any. to be made to the 
field of membership for participation in 
the Program, including; 

(A) Evidence of approval of change by 
credit union board of directors; 

(B) Evidence of submission and 
approval of change by the state 
supervisor 

(ili) Current designation as a low- 
income credit union if the credit union 
is not federally insured. 

(4) Specifics of how the oedit union 
proposes to serve the needs of its 
members and the community with 
Program funds. The appUcant credit 
union will also construct and submit a 
plan for its growth and development. 
The plan will set forth objectives for 
financial growth, aedit union 
development and capitalization, and the 
means for achieving these objectives. 

(5) Indication of any other 
involvement in existing community 
development programs of state and 
federal agencies. 

(c) NCUA will notify appUcant credit 
unions as to whether or not they have 
qualified for a loan or technical 
assistance under this part- Reasons for 
nonqualification will be stated. Any 
applicant whose quaUfication is denied 
may appeal that decision to the NCUA 
Board. 

1705-4 Community nttede plan. 

(a| The credit union's board of 
directors will prepare a Community 
Needs Plan and submit it with its loan 
application This Plan will establish and 
set forth liaison activities with 
government agencies and others having 
devebpmental projects in the 
community. The Plan will also '•""'■■n 
a list of needed community services that 
the credit union will provide. 



(b) The credit union's board of 
directors will report on the progress of 
providing needed community services 
to the credit union members once a 
year, either at the annual meeting or in 
a written report sent to all members. 
The credit union will also submit the 
wntten report or a summar>' of the 
report given at the annual meeting to 
NCUA. 

{ 705.7 Loans to participating eredlt 
unions. 

(a) Amount and recording of loans A 
participating credit union will be 
eligible to receive up to S300.000. as 
determined by the NCUA Board, in the 
form of a loan from the Community 
Development Revolving Loan Fund for 
Credit Unions. The amount of the loan 
will be based on funds availability, the 
creditworthiness of the participating 
credit imion. financial need, and a 
demonstrated capability of a 
participating credit union to provide 
financial and related services to its 
members. At the discretion of NCUA, a 
loan will be recorded by a participating 
credit union as either a note payable or 
a nonmember deposit. 

(b) Matching requirements. 
Participating credit unions will be 
encouraged to develop, as rapidly as 
possible, a permanent source of member 
shares. 

(1) Loan monies made available must 
be matched by the participating credit 
imion by increasing its member and 
nonmember share deposits in an 
imount equal to the loan amount Share 
deposits accepted to meet this matching 
requirement are not subject to the 

S 701.32 limitation on nonmember 
deposits. Participating credit unions 
must meet this matching requirement 
within one year of the approval cf the 
loan application and must maintain the 
increase In the total amount of share 
deposits for the duration of the loan 
Once the loan is repaid, nonmember 
share deposits accepted to meet the 
matching requirement are subiert to 
§701.32. 

(2) Upon approval of its loan 
application, and before it meets its 
matching requirement, a participating 
credit union may receive the enure loan 
commitment in a single payment If any 
funds are withheld, the remainder of the 
funds committed will be available to the 
participating credit union only after it 
has documented that it has met the 
match requirement for the total amount 
of the loan committed. 

(3) Failure of a participating credit 
union to generate the required maich 
within one year of the approval of the 
loan will result in the reduction of ihe 
loan proportionate to the amount of 



462 



Federal Register / Vol. 57. No. 231 / Tuesday. December 1. 1992 / Proposed Rules 56873 



match actually generated. P8>'nient of 
any additional funds initially approved 
will be limited as appropriate to reflect 
the revised amount of the loan 
approved Any funds already advanced 
to the participating credit union in 
excess of the revised amount of loan 
approval must be repaid immediately to 
NCUA Failure to repay such funds to 
NCUA upon demand shall result in the 
default of the enUre loan. 

(c) Terms and repavment. (1) 
Assistance made available through 
Prcgram loans, whether recorded by the 
credit union as a note payable or 
nonmember deposit at NCUA's 
direction, is m ihe form of a loan and 
must be repaid to NCUA. All loans will 
be scheduled for repayment within the 
shortest time compatible with sound 
business practices and with objectives 
of the Program, but in no case will the 
term exceed five vears. 

(2) Semiannuafmterest paymeotj 
fbegmning six months afler the initial 
distribution of a loan) and semiannual 
principal payments [beginning one year 
after the initial distribution of a loan) 
will be required. 

(d) Interest rates. Loans made under 
this rule shall bear interest at a fixed 
annual percentage rate of not more than 
3 percent and not less than 1 percent as 
determined by the NCUA Board. 

(e) Default, collections and 
adjustments The terms of each loan 
agreement shall provide for the 
immediate acceleration of the unpaid 
balance for breach or default in the 
performance by the participating credit 
union of the terms or conditions of the 
loan. This will include 
misrepresentation, default in making 
interest/principal payments, failure to 
report, insolvency, failure to maintain 
adequate match for the duration of the 
loan period, etc. The unpaid balance 
will also be accelerated and 
immediately due if any part of the loan 
funds are improperly used, or if 
uninvested loan proceeds remain 
unused for an imreasonable or 
unjustified penod of time. 

§ 705.8 Sut*-ctiart«fed erttftt uniona. 
Participating stat&-chartered credit 
union loan applicants must obtain 
written concurrence from their 
respective state regulatory authority. 
Such applicants shall make copies of 
their state examination reports available 
to NCUA and shall agree to examination 
by NCUA for the limited purpose of 
compliance with this part 

I705J Appllcatton pwtod 

NCUA will announce annually and 
publish in the Federal Register when 
applications for participation In the 



program may be submitted. Such notice 
will be dep>endent upon the availability 
of funds. 

§ 705. 1 Tachnlcal aaaJstance. 

NCUA may contract with outside 
providers to render technical assistance 
to participating credit unions. 
Participating credit unions can be 
provided with technical assistance 
without obtaining a Program loan. 
Technical assistance provided will aid 
perticipating credit unions in providing 
services to their members and in the 
efF.cient operation of such credit 
unions. Up to one-half of the interest 
monies received on loans repaid into 
the Fund will be set aside for technical 
assistance, but such amount will not 
exceed S120,000 per year. 
IFR Doc 92-291 10 Filed 11-30-92; 6 45 am] 

MJJNG OOOC TPS1-« 



DEPARTMENT OF TRANSPORTATION 
Federal Aviation Admlnlatretlon 

14CFRPart39 

[Docket No. 92-NM-1S5-AD1 

Alnvofthlness Dtrectlvet; Cessna 
Citation MocSel 500/501 and 550/551 
Series Airplanes. Equipped With 
Thrust Reversers; and Model S550, 
560, ar>d 650 Serfea Airplanes 

agency: Federal Aviation 

Administration. DOT. 

ACTION: Notice of proposed rulemaking 

C-JFRMl. 

SUMMARY: This document proposes the 
adoption of a new airworthiness 
directive (AD) that is applicable to 
certain Cessna Qtation Model 500/501, 
550/551. S550. 560. and 650 senes 
airplanes. This proposal would require 
modification of the thrust reverser 
throttle load limiier. This proposal is 
prompted by an incident m which crew 
members attempted to advance the 
throttle control levers during transition 
of the thrust reverser, which resulted in 
activation of the spring-loaded Umiter 
device in the power control system and 
subsequent displacement of the load 
Umiter to a position that severely 
reduced engine power control authority. 
The actions specified by the proposed 
AD are intended to prevent severely 
reduced engine power control euthority. 
DATES: Comments roust be received by 
January 27, 1993. 
ADDRESSES: Submit comments Id 
triplicate to the Federal Aviation 
Administration (FAAJ. Transport 
Airplane Directorate. ANM-103, 



Attention: Rules Docket No. 92-NM- 
155-AD. 1601 Lind Avenue. SW.. 
Renton, Washington 98055-4056. 
Comments may be inspected at this 
location between 9 a.m. and 3 p rr.. 
Monday through Friday, except Federal 
holidays. 

The service information referenced in 
the proposed rule may be obtained from 
Cessna Aircraft Company. Citation 
Marketing Ehvision. P O. Bex 7706. 
Wichita. Kansas 67277. This 
information may be examined at the 
Federal Aviation Administration (F.\-M. 
Transport Airplane Directorate. 1601 
Lind Avenue. SW.. Renton. Washington; 
or at the FAA. Wichita Aircraft 
Certification Office. 1801 Airport Road. 
Room 100. Mid-Continent Airport. 
Wichita. Kansas. 

FOR FURTHER MF0RMAT10N CONTACT: Jack 

Pearson. Aerospace Engineer, 
Propulsion Branch. ACE-140W. FAA, 
Wichita Aircraft Certification Of.'ice. 
1801 Au-port Road. Room 100. Mid- 
Continent Airport. Wichita. Kansas 
67209; telephone 1316) 946-1140; fax 
(316)946-4407. 

SUPPL£M£NTARY INFORMATION: 

Comments Invited 

Interested persons are invited to 
participate in the making of the 
proposed rule by submitting such 
written data, views, or arguments as 
they may desire. Communications shall 
identify the Rules Docket number and 
be submitted in triplicate to the address 
specified above. Ail communicauons 
received on or before the closing date 
for comments, speofied above, will be 
considered before taking action on the 
proposed rule. The proposals contained 
in this notice may be changed in light 
of the comments received. 

Comments are specifically mvited on 
the overall regulatory, economic, 
environmental, and energy aspects of 
the proposed rule. All comments 
submitted will be available, both before 
and after the closing date for comments. 
in the Rules Docket for examination by 
interested persons. A report 
summanzing each FAA-public contact 
concerned with the substance of ih:s 
proposal will be filed in the Rules 
Docket. 

Commenters wishing the FAA to 
acknowledge receipt of their comments 
submitted in response to th^s notice 
must submit a self-addressed, stamped 
postcard on which the following 
statement is made; "Comments to 
Docket Number 92-NM-155-AD The 
postcard will be date stamped and 
returned to the commenter. 



463 

FINANCIAL STABILITY OF CU'S 

Mr. Jepsen. Finally, Mr. Chairman, I realize this is a hearing on 
the central liquidity facility. I would take just a moment, if you 
please, to share with you the good news report about the credit 
unions and the financial stability of the National Credit Union 
Share Insurance Fund. 

1992 was the best year in history for federally insured credit 
unions. Shares grew at 13.6 percent. Our earnings have increased 
73 percent to $2.1 billion. Delinquencies are at an all-time record 
low. Our problem credit unions, both in numbers of credit unions 
and assets, are at an all-time low. And all during this time, which 
has been a time of trial, as you well know, for financial institutions 
in various parts of the country, our capital reached 8.1 percent 
which is the fifth straight year of growth for this vital ratio. 

I am thankful to be able to share this good news with you and to 
assure you that we will continue to do everything we can not only 
to maintain the safety and soundness of the credit union communi- 
ty and movement, but to make sure that we do so in a way that 
will provide assistance to encourage the access to credit to millions 
of Americans who otherwise might not have access to credit and, 
therefore, quality of life because they don't fit the profile of some 
of the more profitable institutions. 

The credit unions have a history of providing that access to 
credit to those of less affluence, and we will continue to do every- 
thing we can as a regulatory agency and insurer to facilitate that 
type of service and access to credit on a safe and sound basis. We 
are pledged to that and committed to it, and we have worked hard 
to bring it about, and we are thankful that we are in good shape. 

[The information follows:] 



464 

TESTIMONY OF 

ROGER W. JEPSEN 
CHAIRMAN, NATIONAL CREDIT UNION ADMINISTRATION 

BEFORE THE 

SUBOMmXE ON HUD - INDEPENDENT AGENCIES 

COMMITTEE ON APPROPRUTIONS 

U. S. HOUSE REPRESENTATIVES 



APRIL 1, 1993 



465 



TESTIMONY OF ROQER W. JEPSEN 

MISTER CHAIRMAN AND MEMBERS OF THE SUBCOMMITTEE, THANK YOU FOR 
THIS OPPORTUNITY TO APPEAR BEFORE YOU AND PRESENT OUR REQUEST FOR 
THE NCUA CENTRAL LIQUIDITY FACILITY. APPEARING HERE WITH ME TODAY 
ARE RON LEWANDOWSKI, PRESIDENT CENTRAL LIQUIDITY FACILITY; ROBERT 
M. FENNER, GENERAL COUNSEL; D. MICHAEL RILEY, DIRECTOR OF THE 
OFFICE OF EXAMINATION AND INSURANCE; AND WILLIAM C. POLING, BUDGET 
OFFICER. 

FOR FISCAL YEAR 1994, WE ARE AGAIN REQUESTING A 600 MILLION DOLLAR 
LIMIT ON NEW LOANS. THIS REQUESTED LIMIT HAS REMAINED CONSTANT 
FOR THE LAST 13 YEARS AND, I MIGHT ADD, HAS PROVEN TO BE ADEQUATE 
DURING THESE YEARS. WHILE I HAVE EVERY REASON TO BELIEVE THAT 
THIS AMOUNT CONTINUES TO BE ADEQUATE, SOME RECENT DEVELOPMENTS 
WITHIN THE CREDIT UNION COMMUNITY MAY DICTATE OTHERWISE. WHAT I 
AM REFERRING TO IS THE CONTINUED CONVERSION OF PRIVATELY INSURED 
CREDIT UNIONS TO COVERAGE PROVIDED BY THE NATIONAL CREDIT UNION 
SHARE INSURANCE FiniD. IF MEMBERSHIP CONFIDENCE IN PRIVATELY 
INSURED CREDIT UNIONS ERODES, WE MAY WELL FIND OURSELVES 
ENCOUNTERING A GREATER DEMAND FOR SHORT-TERM LIQUIDITY FROM THE 
CENTRAL LIQUIDITY FACILITY BY THOSE CREDIT UNIONS THAT ARE 
AFFECTED. 



466 



REGARDING THE CLF'S OPERATING EXPENSES, WE ARE REQUESTING THAT THE 
COMMITTEE CONSIDER A $945,250 LIMITATION WHEN APPROVING OUR 
PORTION OF THE HUD - INDEPENDENT AGENCIES BUDGET. OUR REQUEST 
THIS YEAR REPRESENTS A DECREASE OF $750 FROM LAST YEAR'S APPROVED 
LIMITATION. THIS IS THE SECOND CONSECUTIVE YEAR THAT THERE HAS 
BEEN A REDUCTION IN OUR REQUEST. 

IF A LIQUIDITY CRISIS SHOULD ARISE, THE CENTRAL LIQUIDITY FACILITY 
NEEDS TO BE PREPARED TO ACT, AND WE BELIEVE THAT THE COMMITTEE'S 
AUTHORIZATION OF A 600 MILLION DOLLAR NEW LOAN LIMIT SHOULD BE 
ADEQUATE FOR FISCAL YEAR 1994, UNLESS MEMBERSHIP CONFIDENCE IN THE 
PRIVATELY INSURED CREDIT UNIONS CAUSES A LIQUIDITY PROBLEM AS I 
MENTIONED PREVIOUSLY. 

MISTER CHAIRMAN, WE RESPECTFULLY ASK THAT YOU SUPPORT OUR 
AUTHORIZATION REQUEST IN ORDER THAT WE MAY RESPOND QUICKLY TO 
CHANGES IN THE CREDIT UNION COMMUNITY. BY SUPPLYING A SOURCE OF 
EMERGENCY FINDS, THE CENTRAL LIQUIDITY FACILITY BOLSTERS PUBLIC 
CONFIDENCE DURING PERIODS OF LIQUIDITY STRESS. 



467 



SINCE FISCAL YEAR 1990, THE NATIONAL CREDIT UNION ADMINISTRATION 
BOARD HAS CONTINUED TO ISSUE APPROPRIATE REGULATIONS AND PROVIDE 
DIRECTION TO IMPLEMENT THE COMMUNITY DEVELOPMENT REVOLVING LOAN 
PROGRAM FOR CREDIT UNIONS. FOR THE PAST THREE CONSECUTIVE FISCAL 
YEARS AND AGAIN IN FISCAL YEAR 1993, APPLICATIONS HAVE BEEN AND 
ARE BEING ACCEPTED FROM CREDIT UNIONS WISHING TO PARTICIPATE IN 
THE PROGRAM. DURING THIS PERIOD, $6.5 MILLION HAS BEEN PROVIDED 
TO 41 CREDIT UNIONS THAT ARE NOW PARTICIPATING IN THE PROGRAM. 
THESE CREDIT UNIONS HAVE REPAID $1.3 MILLION IN PRINCIPLE AS OF 
FEBRUARY 28, 1993, LEAVING AN OUTSTANDING BALANCE OF $5.2 MILLION. 
IN ADDITION, INTEREST HAS BEEN COLLECTED TOTALLING $239,000 WHICH 
IS USED TO PROVIDE TECHNICAL ASSISTANCE AND TO ESTABLISH A RESERVE 
AGAINST ANY LOSSES WHICH MAY OCCUR. 

THE NATIONAL CREDIT UNION ADMINISTRATION BOARD HAS DIRECTED THAT A 
ONE YEAR PILOT PROGRAM BE UNDERTAKEN TO STUDY ALL ASPECTS THAT 
RELATE TO LOW-INCOME CREDIT UNIONS TO DETERMINE WHAT CHANGES, IF 
ANY, NEED TO BE MADE TO MAKE THE OPERATIONS OF THOSE CREDIT UNIONS 
AND THE SUPERVISION OF THEM MORE EFFECTIVE. THE RESULTS OF THAT 
PROGRAM WILL BE PROVIDED LATE THIS SUMMER. BASED ON ANTICIPATED 
RECOMMENDATIONS, WE EXPECT IMPROVEMENTS IN THE OPERATIONS OF THESE 
CREDIT UNIONS, STREAMLINING THE ADMINISTRATION OF THE REVOLVING 
LOAN PROGRAM, AND MOST IMPORTANTLY GREATER PARTICIPATION BY CREDIT 
UNIONS. 



468 



MISTER CHAIRMAN, THERE HAS BEEN MUCH FAVORABLE INTEREST THIS YEAR 
IN COMMUNITY DEVELOPMENT CREDIT UNIONS AND THE REVOLVING LOAN 
PROGRAM, PARTICULARLY FROM MEMBERS OF THE HOUSE AND SENATE BANKING 
COMMITTEES. WE ARE PLEASED AT THE ATTENTION AND THE RECORD OF 
NCUA IN ADMINISTERING THE PROGRAM. MR. ROBERT SWAN, MY COLLEAGUE 
ON THE NCUA BOARD, TESTIFIED ON THIS SUBJECT BEFORE THE 
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS OF THE HOUSE BANKING 
COMMITTEE ON FEBRUARY 3. I WOULD COMMEND MR. SWAN'S TESTIMONY TO 
YOU AND ASK PERMISSION TO INSERT IT IN THE RECORD. 

FINALLY, MISTER CHAIRMAN, ALTHOUGH I REALIZE THIS HEARING IS ON 
THE CENTRAL LIQUIDITY FACILITY, I WOULD LIKE TO TAKE JUST A MOMENT 
TO REPORT TO YOU ABOUT THE CONDITION OF CREDIT UNIONS AND THEIR 
FEDERAL INSURER. 

1992 WAS PROBABLY THE BEST YEAR EVER FOR FEDERALLY-INSURED CREDIT 
UNIONS. SHARES GREW 13.6 PERCENT, EARNINGS INCREASED 7 3 PERCENT 
TO $3.1 BILLION, DELINQUENCIES DECLINED TO A RECORD LOW, AND BOTH 
THE NUMBER AND THE ASSETS IN PROBLEM CREDIT UNIONS DECLINED 
DRAMATICALLY. MOST IMPORTANTLY, CAPITAL REACHED 8.1 PERCENT, THE 
FIFTH STRAIGHT YEAR OF GROWTH IN THIS VITAL RATIO. 



469 



I AM PLEASED TO BE ABLE TO GIVE YOU THIS GOOD NEWS, AND TO ASSURE 
you THAT WE WILL DO ALL WE CAN TO MAINTAIN THE SAFETY AND 
SOUNDNESS OF THE CREDIT UNION SYSTEM. 

THANK YOU FOR THE OPPORTUNITY TO APPEAR BEFORE YOU TODAY AND 
PRESENT OUR REQUESTS FOR THE CENTRAL LIQUIDITY FACILITY. WE WOULD 
BE PLEASED TO ANSWER ANY QUESTIONS THAT YOU MAY HAVE. 




470 



NATIONAL CREDIT UNION ADMINISTRATION 
WASHINGTON. O.C. S0456 



ROGER W. JEPSEN 
CHAIRMAN 
BIOGRAPHY 



Roger W Jepsen was appointed by President Reagan to serve as Chairman of the National 
Credit Union Administration Board in October 1985. 

A native of Iowa, he was elected to the United States Senate (R-Iowa) and served from 
1979 to 1985 In the State of Iowa, he was elected Lt Governor twice, and during his 
second term he was elected Chairman of the National Lt Governors' Conference He also 
served four years as Supervisor of Scott County, Iowa, and 2 years in the Iowa State 
Senate 

As a member of Congress, Senator Jepsen served on the Joint Economic Committee, 
Armed Services Committee, and the Agriculture, Nutrition and Forestry Committee from 
1979 to 1985 In 1983 and 1984, he was Chairman of the Joint Econonuc Committee 

He is also a member of the Federal Financial Institutions Examination Council. 

Active in numerous civic organizations. Senator Jepsen holds a Bachelor of Science 
degree and a Master's Degree from Arizona State University. 



471 




NATONAL CREDIT UNION ADMINISTRATION 

WASHINGTON. D.C. a0456 



— RONALD N. LEWANDOWSKI 

PRESIDENT 
CENTRAL LIQUIDITY FACILITY 

BIOGRAPHY 

Ronald N. Lewandowski is President of the National Credit Union Adnumstration Central Liquidity 
Facility. 

As President. Lewandowski serves as the Operating Officer of the Central Liquidity Facility by providing 
overall plaiming. supervision, and administration of the organization He is responsible for establishing 
an maintaining controls within the Central Liquidity Facility (CLF) to insure that the objectives of the 
CLF are executed is a maimer consistent with the law. regulation, and the policies of the CLF Board The 
NCUA Board serves as the CLF Board 

Lewandowski joined the Bureau of Federal Credit Unions, the predecessor of the National Credit Union 
Administration in 1968 as an Examiner in Detroit. Michigan He progressed through the examiner ranks 
culminating with a promotion to Liquidation Specialist in the Regional Office in Toledo, Ohio He served 
in a number of other regional office positions ending with his selection Deputy Regional Director in 1982. 
He served in that position in the Chicago Regional Office, the Boston Regional Office, and the Capital 
Regional Office in Washington, DC In 1988, he was appointed Treasurer of the Central Liquidity 
Facility and served as Acting President since December, 1991 In August 1992, he was appointed to the 
position of President 

Pnor to becoming an examiner, Lewandowski served in the US Army and was employed by the US 
Postal Servace while attending college He is a native of Detroit, Michigan, and holds an accounting 
degree from the Detroit Institute of Technology 



472 



s^ 




NATIONAL CREDIT UNION ADMINISTRATION 
WASHINGTON. D.C. 20^*56 



BIOGRAPHY 

JAMES J. ENGEL 

DEPUTY GENERAL COUNSEL 

NATIONAL CREDIT UNION ADMINISTRATION 



James J. Engel is the Deputy General Counsel of the National Credit Union 
Administration Mr Engel assists the General Counsel in directing the Agency's legal staff 
in providing legal advisory services to the NCUA Board and other Offices of NCUA, 
administering the Agency's rulemaking program and representing the Agency in all 
litigation and administrative proceedings 

Mr Engel is a native of New Milford, New Jersey, and currently resides in Bethesda, 
Maryland. He received a B A in economics from St. Francis College, Loretto, 
Pennsylvania, and a J D degree from the Columbus School of Law, Catholic University, 
Washington, DC 

Mr Engel began his Govenmient service in 1969 in the General Counsel's Office of the 
Federal Deposit Insurance Corporation before joining NCUA in April of 1973 Prior to 
being named Deputy General Counsel in 1985, Mr Engel served as NCUA's Assistant 
General Counsel, Division of Litigation and Liquidation. Mr Engel also serves as 
NCUA's Ethics Official 




473 



NATONAL CREDIT UNION ADMINISTRATION 
WASHINGTON. D.C. SC3^56 



WILLIAM C. POLING 

BUDGET OFFICER 

NATIONAL CREDIT UNION ADMINISTRATION 



William Poling is the Budget Officer of the National Credit Union Administration 

As Budget Officer, Mr Poling has overall responsibility for the Agency's budget, which 
includes the Central Liquidity Facility, the NCUA Share Insurance Fund and the Agency's 
Operating Fund. 

Mr Poling joined NCUA in December of 1980 From 1974 to 1980, he was a budget 
analyst with the Federal Home Loan Bank Board 

Prior to that, Mr Poling worked in various corporate accounting and budget related jobs 
in private industry 

Mr. Poling received his bachelor's degree in Business and Finance in 1971 from the 
University of Maryland. 



474 




NATONAL CREDfT UNION ADMINISTRATION 
WASHINGTON. D.C. a0456 



D. MICHAEL RBLEY 

DIRECTOR 

OFFICE OF EXAMINATION AND INSURANCE 



BIOGRAPHY 



D. Michael Riley is Director, GfiBce of Examination and Insurance for the National Credit 
Union Administration 

As Director, Riley is responsible for the safe and sound operation of the National Credit 
Union Share Insurance Fund, the federal fiind which insures member savings at 13,000 
credit unions across the country Riley also monitors the examination and supervision 
procedures at federal and federally insured credit unions This includes management of 
the National Credit Union Administration's annual exam program conducted by the 
Agency's examiners, collection and evaluation of financial data credit unions submit 
semiannually, maintenance of the CAMEL Rating System and Financial Performance 
Report, which evaluates and compares their financial condition 

Riley joined the National Credit Union Administration as an Examiner in Greensboro, 
North Carolina, in 1972. He progressed through the ranks and moved to Washington in 
1981 as the Chief of Examination and was later named Director of the Department of Risk 
Management He then served as Regional Director of the Agency's San Francisco 
Regional Office Returning to Washington in 1985, Riley held the concurrent roles of 
Central Liquidity Facility President and Share Insurance Fund Director. He was appointed 
Director of Examination and Insurance in April 1985. 

A native of Tuscaloosa, Alabama, Riley holds and Accounting degree from the University 
of Alabama 

Riley is a 1989 recipient of the President's Meritorious Rank Award, and award for federal 
senior executives who demonstrate exemplary performance 



475 



CU HISTORY OF SUCCESS 

Mr. Stokes. Thank you very much, Senator. I appreciate your 
presentation. ^ 

I might start the questioning really with your last comment, the 
good news that you bring us with reference to credit unions 

Smce the 1980s we have seen the thrift industry undergo some 
very severe problems. We have also seen the banking industry with 
some difficult adjustments that they have had to make, and yet at 
the same time you cite the beautiful success story of credit unions 
lell us why. 

Mr. Jepsen. Well, there are a number of reasons, Mr. Chairman 
Certainly on a mechanical basis, one of the reasons is that in these 
adverse economic times and the depressed economy in various 
areas of the country, the nature and history of the structure of 
credit unions and loan portfolios were, thankfully, not the same as 
a lot ot the banks and the savings and loans. 

We had a large number of consumer-type loans to large numbers 
ot people. They are short term in duration. They are diversified 
and we did not deal in junk bonds and less than 1 percent was in- 
vested in the commercial loan area, which caused the many of the 
problems. ^ 

■ ^°; ^S ^^^ ^^® ^r®^^* *° *^® strong management and the work- 
ing together at credit unions, they are kind of a big family: and 
they have worked hard to meet some of these same financial prob- 
lems. Aney have been in some of the same economically depressed 
areas, but they have worked hard to make sure that they remain 
sate and sound. 

We, at NCUA, on my watch— I came there in 1985, our motto 
has been to keep ahead of our problems, not to let ourselves get 
into a position either in the regulatory or insurance area of having 
our problems drive us. When you get in that problem, it encum- 
bers, sometimes, sound thought and certainly progress. 

We have been able to keep ahead of our problems by increasing 
our training many thousands of times. We have included and 
fw""- .u^'u ^^y,e today a mature level of examiners in the field 
tnat IS the best it has ever been. 

We have during this time— without fear or favor, we have ad- 

fi^t^i w uP"""^^®™? "^^^^^ th^y ^"se and have dealt with them 
tirmly We have worked very hard for early detection of problems, 
so that we can address them before they get to a point where they 
kind of act like quicksand, which happens in a financial institution 
11 a problem goes on and on. 

nJnrrf^rf*¥?i!'^l'^ ^H "^^ ¥^^ ^^^ structure, the cooperative 
nature the fact that members of credit unions do own their finan- 

S Wof/ T' ^^\^^^\ threat of ownership gives an additional tie 
ot loyalty, not only loyalty in paying back their loans but loyalty in 

u^ritl T". ^"^ institution and cooperating in the areas that they 
are asked to resolve their problems. 

«f«ff n? M^ti^^u^^^u ^^^ T^^ that has been done, not only by the 
rounfrl T? u ^* ^L credit union management throughout the 
country. They have addressed it and taken it seriously and have re- 
sponded to our request in a timely manner; and the end result is 
mat we are in better shape, the insurance fund is better funded 



476 

and the credit unions are in the finest shape they have ever been 
in history. 

FEDERAL AND STATE REGULATOR COOPERATION 

Mr. Stokes. I appreciate it. 

Mr. Jepsen. May I just add one other thing for the record. In reg- 
ulation of financial institutions, there are the Federal regulators 
and then there are the State regulators; and we have worked very 
hard and have been very thankful for the cooperation and the 
working together that the State regulators have come forth with 
over the last seven to eight years. We have developed a relation- 
ship where we now have common core examinations. 

Today NCUA trains the great majority — not 100 percent but 
close to it — of all the State examiners. We provide the training. We 
have provided them with laptop computers, and they are complete- 
ly computerized. We have provided training for their examiners, 
and we have tied in our common core reporting forms. So we have 
tied all our information together. 

What I am pointing out in a one-liner here is, I realize that there 
is some natural turf battles — and it has existed, and in some areas 
some of our sister agencies have not been able quite to overcome — 
but we have been very fortunate in having cooperation from the 
State regulators. Working together, we have developed common 
core exams, and common reporting forms. 

We have computer systems that are tied in together. We provid- 
ed all of their training. That has benefited the members of the 
credit unions, which, bottom line, is what we are all working for. 
Because of the number of State charters — which is about one-third 
of all the credit unions in the country, and most of them now are 
federally insured — we have been able to work together for the ben- 
efit of everybody and do it in a fashion that has helped to bring 
about safety and soundness throughout the community. 

CLF paradox 

Mr. Stokes. I appreciate that. 

In your testimony, you note that 1992 was probably the best year 
ever for Federal credit unions. Shares grew by nearly 14 percent; 
earnings increased 73 percent. Delinquency declined to a record 
low in both the number and the in assets. Problem credit unions 
declined. It seems there would be a need for a central liquidity fa- 
cility design to bolster credit unions with short-term liquidity if 
public confidence erodes. 

Could you explain the paradox? 

Mr. Jepsen. Well, let me repeat what I think you asked. The par- 
adox is, since credit unions are in such good shape generally, we 
have a need for the central liquidity facility? 

Mr. Stokes. Right. 

Mr. Jepsen. The central liquidity facility has always been a very 
strong psychological factor, as intangible as it may seem to be in 
the overall operation of the credit union community and NCUA. 
We have had some surprises. One of the most famous, of course, in 
recent history is the Rhode Island situation. Although we were not 
the insurers and although we were not the regulators, we were 



477 

called in and worked night and day to help repair that state situa- 
tion and bring as many credit unions as possible into the Federal 
insurance. 

During this time, there was at times a need for liquidity even if 
it was just visual, that prevented what we call in the jargon of the 
trade "runs" on the financial institutions. The CFL, knowing that 
it is there, the various credit unions and the corporations through- 
out the country know that on a last-resort basis we can move, com- 
municate, and provide liquidity very quickly which was very impor- 
tant. 

When emergencies arise, the fact that we have never utilized the 
entire 600 million nor even a meager portion, the fact that it is 
there has psychologically provided and will continue to provide a 
very sound factor in the confidence level that people have in the 
institution as a whole. Therefore, even though it may seem a para- 
dox, it does have a very specific psychological and, in some in- 
stances, some real use for it. 

Mr. Stokes. I think it is important to have your explanation on 
the record to explain that. 

CDCU LOAN PROGRAM 

NCUA has distributed $6.5 million from its community develop- 
ment revolving fund which provides low Interest to credit unions 
operating In distressed areas. I understand the proponents of the 
program have proposed an Increasing limitation from $6 million to 
$25 million. 

Do you think that $25 million for community development funds 
could be used responsibly? 

Mr. Jepsen. Mr. Chairman, I defer to our CLE President on this. 
He works with these people dally and is in charge of that program. 

Mr. Stokes. Mr. Lewandowski. 

Mr. Lewandowski. Right now, at the present time, the fund is 
set at $6 million and we have only been actively working with it 
since 1990; and over that period of time, we did put out that $6.5 
million. For the first time since we have been working with the 
fund, we have a request for more funds than we have funds avEul- 
able. 

From a track record standpoint, the participating credit unions 
have been very diligent in repaying their obligations. This allows It 
to be a revolving fund, which allows us to reopen It on an annual 
basis. However, as we go on for a period of time, the dollars get 
shorter because it doesn't come back as fast. The program that we 
had, I guess you could say, is was a "road show", where we went to 
various cities — Philadelphia, Newark, Atlanta, New York City, and 
we win be going to Chicago next week to hear from the credit 
unions. 

And a lot of them have great ideas. One of the ide£is that they 
propose was that it would be more beneficial to them if we could 
place these funds for X number of years and only pay back at the 
end, but pay interest on an ongoing basis. It allows them to have 
the benefit, but with the program and the dollars involved, it was 
just not practical to do it. 

So I am sure they would look forward to something like that. 



478 

IMPACT OF LOAN UMITATION INCREASE 

Mr. Stokes. What might be the impact of the $25 million? 

Mr. Lewandowski. Briefly, more applicants. 

Mr. Stokes. More work all over? 

Mr. Lewandowski. I would suspect that the interest is very high. 
This is the feeling we received when we went out and met with the 
credit unions; and there is, right now, a natural tendency to wait 
and see what happens. We are going through a pilot program and 
looking at all aspects as it relates to the administering of the 
Fund's. If the possibility arises to increase the limit that will be 
made available to the credit unions we will be ready. 

So I would suspect it would be warmly embraced. 

LOW income cu study 

Mr. Stokes. Now, the NCUA board will release a study late this 
summer on the operations and regulation of low-income credit 
unions. Can you describe some of the issues that it will examine? 

Mr. Jepsen. Well, I have in the audience Mr. Swan from our 
board, who has been responsible for a lot of the sound development 
of this study and I would refer to him on any comments he might 
have. 

Mr. Stokes. Mr. Swan, we would be pleased to hear from you. 

Mr. Swan. If you would, please, repeat the question exactly so I 
could be specific. 

Mr. Stokes. Okay. The question is, the NCUA board will release 
a study late this summer on the operations and regulation of low- 
income credit unions, and we have asked that you describe some of 
the issues it will examine. 

Mr. Swan. Yes, sir. We approved a pilot program which will be 
completed at the end of the summer. Some of the issues involved 
and the concerns that we had, related to expediting of charters for 
applicants to become a credit union. In addition, to assist them in 
receiving their low-income designation, which then makes them 
available for one thing: to borrow from our revolving loan fund. 

Another issue we found is the ability of these credit unions to 
put together a good management team and good boards and we felt 
that there needs to be some assistance to really implement a pro- 
gram where we can give training and guidance and hands-on help. 
What we call "technical assistance" through the revolving loan 
program, we find is one of the greatest needs. 

We have people that have the market, they have the potential, 
but they are very weak in areas of recordkeeping. They do not 
have available to them some of the technology, just a simple com- 
puter system software program so they can operate a credit union. 
Their people do not have the ability to read financial statements, 
some of the board members, and we find that through some very 
simple training and assistance these goals can be accomplished and 
we can help develop a very strong and viable financial institution 
to serve an economically disadvantaged area. 

potential growth of cdcu's 

Mr. Stokes. While we have got you, Mr. Swan, let's keep you 
here for a minute. 



479 

The testimony, Mr. Swan before the House Banking Committee 
notes that about 45 community development credit unions a year 
were either merged or liquidated between 1982 and 1990, but that 
after a lapse of almost four years, the NCUA board approved in Oc- 
tober of 1992 two new CDCU charters. 

Do you think the number of CDCUs will begin to grow again? 

Mr. Swan. Well, I do think that there are probably some out 
there that are still weak, have really not been performing a very 
significant service, and they probably will go by the wayside. But 
we do believe there is an increased interest in developing new com- 
munity development credit unions, and at this point we have char- 
tered one in Omaha, one in south-central Los Angeles and the 
other in the Brookl}^! area in New York City. 

We have two applications that we are aware of that are in the 
pipeline right now, one in Alexandria, Virginia, and one in Denver, 
Colorado. 

I honestly do believe that there will be renewed interest, and I 
think as a regulatory body, we are better prepared now to guide 
these along and give them some hope that they can render some 
assistance in helping ensure their amount of viability and their on- 
going success. 

DECUNE IN LOW INCOME CU'S 

Mr. Stokes. I agree with you. I think this is a good purpose. I am 
wondering if there is anything more that can be done to encourage 
creation and growth of these CDCUs. 

Now, appendix one to Mr. Swan's testimony shows that the 
number of low-income credit unions decreased from 363 in 1982 to 
147 in 1991. 

Why did this occur and what can be done to reverse it? 

Mr. Swan. Well, I think the reason that it occurred, you have to 
realize that someone came up with the quip that poverty is not a 
very good common bond to begin a financial institution. Very often 
these credit unions were developed in areas that were really under 
a lot of economic stress. They did not develop the management or 
the board direction that they needed to, and even the sponsoring 
entity, in a lot of cases, disappeared. A lot of the community devel- 
opment credit unions developed through the local parish, through 
some sort of a community cooperative institution; and it, just by its 
nature, will always have a high failure rate. 

But I also believe that the opportunity for some assistance was 
never really there before, and I think that is what we are looking 
toward now, that we can help provide that and we can reduce the 
failure rate. 

HISTORY of low INCOME CU'S 

Mr. Jepsen. If I may, Mr. Chairman, I would like to explain that 
era with regard to the question you asked. Throughout the years, 
going back to the early days and on down through to the present 
day, these low-income type of organizations for access to credit for 
people of less affluence have been run up the flag pole, so to speak. 



480 



LOW INCOME CU LEADERSHIP 



Respectfully, I say most people were leading from their hearts, 
not only in providing for the l^islation but in the administering of 
these programs later on. Respectfiilly, I submit to you that one of 
the things that we have done at NCUA since we have received the 
responsibility for this fund is to provide a sound basis by way of 
technical assistance, direction and some structure to put these 
credit unions on a sound basis from the very beginning. 

One of the reasons the chattering is now starting to pick up, is 
that it took us a couple of years and a lot of jaw-boning with the 
people of the community who are interested in this program. I lov- 
ingly say, these people lead with their hearts; and we have been 
talking with these people about leading with your hearts and your 
head at the same time. You have to have both because, I continual- 
ly remind these people in meetings, if you don't have that, you 
can't be of service and provide this access to credit, to these people 
of less affluence who really need these things. Otherwise, you don't 
stay in business. 

The money is not to be handled as a reciprocal pump with an 
unending supply and you give it out leading with your heart rather 
than your head. This money has to be accounted for, and there is 
more than just lending to these people that you must provide. You 
must provide them with a climate that they can grow in, an under- 
standing of the personal management of their money. There are a 
number of other things that are all involved in not only the safety 
and soundness of CU's, a viable continuance of the financial insti- 
tution, and to provide the education and framework for these 
people who are recipients of this program. In addition, to become 
better money managers of their own personal funds and to give 
them an opportunity to grow. 

In other words, the program has been developed by NCUA, and 
since we have had it in place it has provided a safe and sound oper- 
ation, one that will stay in business; and, in order to accomplish 
this we lead with both our hearts and our heads when we adminis- 
ter the program. 

PRIVATELY INSURED CU CONVERSIONS 

Mr. Stokes. I appreciate it, and I think your philosophy is a 
sound philosophy. You are absolutely right in terms of wedding two 
technical assistsmts and help to the humane and charitable aspect 
of it. 

In your testimony this year and last, you referred to the continu- 
ing conversion of privately insured credit unions to the National 
Credit Union Insurance Fund. What percent of all credit unions 
remain privately insured? 

Mr. Jepsen. I refer to Mr. Riley on that. I am sure you can give 
that quickly. 

Mr. Riley. Less than 2 percent in terms of the number most of 
those are in Puerto Rico. 

Mr. Stokes. Can you tell us how many? 

Mr. RiLEY. About 600 left in total. 



481 

Mr. Stokes. All right. How many of the remaining privately in- 
sured credit unions do you expect to insure in fiscal year 1993 and 
1994? 

Mr. Riley. The applications come in around one or two or three 
a day, so we would anticipate at this rate that we would insure an- 
other 100 to 150 in the next year. 

Mr. Jepsen. One or two or three a week. 

Mr. Riley. A week, okay. 

Mr. Jepsen. They dribble in. They have been coming in on a 
fairly regular basis. However, there have been massive conversions 
as you may know, Mr. Chairman, as a result of the Rhode Island 
situation. 

The Governor, Governor Chiles a former colleague of mine, and 
the Governor of Florida, passed legislation very quickly to have 
massive conversion, and the State of Georgia did it by word of 
mouth. The new Governor of Texas, Governor Richards, two days 
before her inaugural speech called the regulators together, both 
Federal and State, and said, I want you people to think about it, 
and in the next two hours make a decision and tell me whether 
you will work together to convert. And how many were in Texas, 
Mike, 400 and some? 

Mr. Riley. Four hundred, right. 

Mr. Jepsen. Four hundred plus privately insured credit unions. 

And Governor Richards said, you people tell me how you are 
going to work it out, and tell me by 4 o'clock this afternoon. If you 
can't get together and work it out yourself, I will put it in the first 
paragraph of my inaugural speech on Wednesday. 

Kansas passed legislation. Missouri passed legislation. It has 
been massive. Massachusetts Governor whispered essentially and 
said, I want everybody to be federally insured and that has been 
working without legislation. 

It is a process over the last two years that has been very intense. 
It has been accomplished through a great deal of cooperation and 
extra man-hours, some 150,000 man-hours in our agency; but I am 
pleased and thankful again to be able to report it has been done 
without adverse publicity, major runs, and no losses to any mem- 
bers, so it has been in an orderly manner. 

STATUS OF private INSURANCE 

In the next two years the situation will depend on individual 
State governors in the two states where there is private insurance. 
But I anticipate-I make private insurers very angry when I say 
this, it is not a matter of whether, it is just a matter of when. It is 
not disrespect to private insurers. You have to have two things to 
make this work. One is numbers and one is diversification of risk, 
and there isn't a private insurer that hasn't qualified in either 
event. 

NEED FOR THE CLF 

Mr. Stokes. Let me ask you this, Senator. Once all credit unions 
are insured, will we have any need to continue the CLF? 

Mr. Jepsen. Well, I would have to think about that. Mr. Riley or 
Mr. Fenner, do you want to respond? 



482 

Mr. Riley. We use the CLF basically as a way to put money into 
institutions. It is our delivery arm of the National Credit Union In- 
surance Fund to deposit insurers, so assuming we are structured 
the same, we would use it for the occasional insured institution 
that has problems. We utilize the CLF as our mechanism to cash 
our loans into institutions. 

Mr. Stokes. So you are saying, even though they are all insured 
at that juncture, you would still have a need for it? 

Mr. Riley. It is a backup faciUty. We hope we don't ever have to 
use it, and the deposit fund guarantees all the loans that CLF 
makes. We take the risk, but it is our way of putting money into 
institutions also. 

CLF BORROWING LIMITATION 

Mr. Stokes. Central Liquidity Fund lent $29 million in 1990, 165 
million in 1991 and 19 million in 1992. Your budget justification 
project is lending at $150 million in 1993 and 100 million in 1994. 

Tell us, why should the limitation be set at 600 million rather 
than, say, 200 million? 

Mr. Jepsen. Mr. Lewandowski. 

Mr. Lewandowski. The $600 million figure, because of the way 
the statute is developed right now within the law itself, we have 
authorization to go from any source 12 times our capital, which in 
essence says we could borrow $13.5 billion. The $600 million is a 
figure we put together internally. This is the comfort level that we 
needed to take care of the business that we anticipate could or may 
happen. And we have had it there for 13 years, and we have been 
comfortable with it. And I believe the 600 million is still necessary 
until we solve the final 2 percent CU conversions, plus some of the 
other credit unions that are out there who may need assistance. 

CLF membership 

Mr. Stokes. All right. Page 2 of your justification notes that 100 
percent of all credit unions will be covered by the CLF in 1994. 

What percent of all credit unions are covered in 1992 and in 
1993? 

Mr. Lewandowski. I would say probably about 99.9 percent. 

Mr. Stokes. Really? 

Mr. Lewandowski. Yes. We have our working relationship. 
There are two kinds of memberships. There are the direct mem- 
bers, which are your national credit unions, and we have the 
agents which are the corporate credit unions who make a deposit 
on behalf of their member credit unions; and therefore they all 
funnel in that way to us. There are still a few that we show not to 
be a member of corporate union or a direct member of the CLF. 

Mr. Stokes. This is a voluntary operation. 

Mr. Lewandowski. Yes, it is totally. 

Mr. Stokes. Okay. 

Mr. Lewis. I am surprised at that figure, that 97 percent. 

Mr. Stokes. I was surprised, too. That is good. 



483 



INSURANCE FUND LOSSES 



Mr. Stokes. In testimony last year, you said as much as 80 per- 
cent of your annual insurance loss is as a result of credit unions 
involved in commercial lending. Most community development 
bank proposals include provisions for commercial lending to small 
businesses. Your experience seems to indicate that this is not an 
area that credit unions should be more involved in. Would you 
agree to that? 

Mr. Jepsen. Not necessarily. 

Mr. Riley, would you respond to that? 

Mr. Stokes. Mr. Riley. 

Mr. Riley. I would like to separate two things. One of the real 
commercial and the speculative construction tjrpe lending is the 
area that we lost the money. An example would be in large devel- 
opment office parks. We don't discourage credit unions from 
making a small business loan for the fisherman who needs a net or 
the dentist who needs a whatever. That is the type of loans we 
would encourage in credit unions. And that is the type of loan we 
see most likely in a community development credit union. We hope 
not to see the large commercial developments occur in credit 
unions or in CDCUs. 

INSURANCE FUND EQUITY RATIO 

Mr. Stokes. All right. In testimony last year, you noted that the 
equity ratio for the insurance fund, the amount of equity as a per- 
cent of the total amount insured, had fallen somewhat in fiscal 
year 1991 but had risen to 1.24 in fiscal year 1992, 

Can you tell us what it is now? 

Mr. Jepsen. Yes, sir. 

Mr. Riley is the administrator of the fund. 

Mr. Riley. 1.27 right now, or will be by the end of June. 

ADMINISTRATION EXPENSE UMITATION 

Mr. Stokes. In fiscal year 1992, NCUA requested an administra- 
tive expense limitation of $964,000 yet spent only $775,000. In fiscal 
year 1991, you spent only $860,000. 

Do you expect to be similarly under budget in 1994? 

Mr. Jepsen. Mr. Lewandowski? 

Mr. Lewandowski. No. I would suspect that would be the case. 
The reason for the decrease or the drop was we were short one 
staff person for an extended period of time. When you take the 
salary and benefit costs of that individual it represents a signifi- 
cant part of that savings. We will be fully staffed come next 
Monday. 

Mr. Stokes. Okay. 

Mr. Lewis? 

RHODE ISLAND CRISIS 

Mr. Lewis. Thank you, Mr. Chairman. 

Senator Jepsen, first, let me welcome you and apologize for being 
down the hall. We had the General who is in charge of securing 
the conditions in Europe, and it was kind of timely at this moment. 



484 

Mr. Jepsen. It is. 

Mr. Lewis. In reviewing your testimony, however, I was interest- 
ed in your statement that 1992 was a banner year for your institu- 
tion and for credit unions. The profits were up and financial diffi- 
culties were down. 

With that in mind, there are economic difficulties that go region 
by region. Could you give me, an idea of what your actual experi- 
ence was with the credit unions in Rhode Island? 

Mr. Jepsen. I will try to put that in a one-liner. The experience 
lasted from early December until the eighth day of January. And 
we had 60 special actions people committed up there, and they 
stayed there through the Christmas holidays, I might add. They 
were working 18-plus hours a day. Senior staff, including myself, 
were up working with the governors. With the various means we 
had, it was a dramatic and traumatic time. 

I could probably summarize it by sa5dng that there was a situa- 
tion where you had neither the numbers nor the diversification of 
risk that were assumed by a privately insured institution. Did they 
insure anyone outside the State of Rhode Island? 

Mr. Riley. Not outside the State of Rhode Island. 

Mr. Jepsen. Confined to the geographic boundaries of Rhode 
Island. 

The combination of economic times plus, frankly, some credit 
unions were not operating like normal credit unions and were in- 
volved in high speculative finance. Also, there was a great deal of 
interrelated pjrramiding of funds and loans. I think this is all still 
in litigation up there and maybe will be for some time, and I hesi- 
tate to comment in any detail, other than it was a kind of mess. 

Mr. Lewis. Sounds like it. 

Mr. Jepsen. And we came in with a kind of peculiar situation. 
We were asked in by both the trade association, the credit unions 
themselves, and the regulators — what was left of them there-to 
come in this. This was an area that we had no responsibility for, 
and no statute-by-statute authorization to do so. 

Is that right, Mr. General Counsel? 

Mr. Fenner. Yes, sir. 

Mr. Jepsen. And yet they look to NCUA to fix it. And we worked 
hard at it, and I would suggest that the history now says that most 
of this is history; and there were some great trauma and tremen- 
dous heartaches and tragedy in many cases where people do not 
have access to the money when they needed it. And it is now histo- 
ry. And the governor. Governor Sunland, who was a new governor, 
stepped in on his inaugural day, had to close down all the financial 
institutions, regardless of party. I would say he had great courage 
and, with great vision, in a tough row to hoe, has certainly been 
the right person, at the right time and the right place; and he has 
done a great job up there. 

regional economic conditions 

Mr. Lewis. I pursue this line of questioning in no small part be- 
cause some years ago, when I was making a living in the private 
sector, in the insurance business, one of my early clients was a siz- 
able credit union and a local utility. That credit union has grown 



485 

very significantly in the intervening, many years. Economic condi- 
tions vary widely in different parts of the country. Nebraska is 
booming right now they are saying. California is in tough shape. 

Are there regions where we ought to be concerned about the sta- 
bility? And if so, what kinds of things do you need to be able to 
assist as you have elsewhere? 

Mr. Jepsen. Are you asking about California? 

Mr. Lewis. Not necessarily. I would like to hear what you have 
to say. 

Mr. Jepsen. Well, I think I will have Mr. Riley address that. 

Credit unions are in good shape all over. And in California, they 
also are. We continually monitor and watch the economies of the 
various areas of the country. We anticipated, to some degree, what 
came down in New England in that we had special teams up there 
for about 14 months before the crash came. 

We have been watching California very close. Common sense dic- 
tates that when you consider the cutbacks in defense and the 
impact of the floods. 

Mr. Lewis. The flooding is a problem now. 

Mr. Jepsen. I was out there. I was out at Dana Point a couple 
weeks ago, and I spoke to a group out there. I noticed in the bath- 
room they s£iid, please conserve water and don't use any more than 
necessary; and at the same time I heard the television news report 
in the next room talking about all the floods in California. 

Well I got off the subject. But we feel that we are both equipped 
as an agency with the level of professionalism that we have and 
experience now in our examination, our numbers, our experience, 
we believe that we are ahead of the problems and will continue to 
stay that way. There are some areas of the country we are watch- 
ing closer than others, but we have been jawboning with them con- 
tinually. 

We meet regularly with both the representatives of the credit 
union community, the State regulators in anticipation of problems, 
ability to move, communicate, and shoot very early on if something 
starts coming down. We don't anticipate any. 

I said I would let Mr. Riley answer it, but I forget I am no longer 
in the Senate. 

Mr. Riley? 

Mr. Riley. That was everything. Quickly, New England, we were 
in earlier; we think that is behind us for the most part. 

The other part of the country we are looking at is California, the 
Los Angeles basin. If unemplo5niient stays high out there for an ex- 
tended period of time, it will eventually start to affect us. Right 
now, credit unions are in outstanding shape in California, for the 
most part. But we have done special exams out there to look at 
their portfolios and their condition, and we are monitoring them 
very carefully. 

enforcement authority 

Mr. Lewis. Over the years, I have noted that we have no short- 
age of people who figure out one scheme or cmother to advance 
their interests. And when you mentioned very risky lending prac- 
tices in New England, for example, in the previous part of your re- 



486 

sponse, I am wondering if either of you would comment on steps we 
could take to assist you regarding recommendations that will allow 
us to focus on problems of the kind you have experienced. 

Mr. Jepsen. I will, again, refer to the general counsel. And I will 
just make one statement. I j)ersonally believe we have all the au- 
thority we need to do everything we need to do. Our record speaks 
for itself And at the risk of being misunderstood, we would like to 
be left alone. 

Mr. Riley or Mr. Fenner? 

Mr. Fenner. We have had three cases in New England where 
our losses were, I think, what we would call significant, in the tens 
of millions of dollars in each case. 

I would say that in two of those cases, there was clear fraud, 
clear criminal activity involved. Criminal statutes are on the books 
that need to be there, though. And I think, if anything, what we 
need to do — and are doing — is to continue to try to improve our 
ability to detect fraud. And we have taken a number of steps to do 
that and to improve our working relationships with the local field 
offices of the FBI and the U.S. Attorney's to bring these cases to 
prosecution and get the message out that that kind of activity is 
not going to be tolerated. And I think we are making real good 
progress in that regard. We have indictments in one of the three 
cases. 

Mr. Lewis. Mr. Chairman, I wouldn't want to impose on Ms. 
Kaptur. 

I would suggest to the Senator, if he gets tired of that tie, I'd be 
happy to have it. 

Mr. Stokes. It is a beautiful tie. 

Mr. Jepsen. My wife brought me that from Paris, France. 

Mr. Stokes. It is beautiful. 

Ms. Kaptur. She has good taste. 

Mr. Stokes. I yield to you Ms. Kaptur. 

Ms. Kaptur. Thank you, Mr. Chairman. 

industry financial trends 

Mr. Jepsen, we certainly welcome you. And I am personally, as 
you know, very interested with the role of credit unions and fi- 
nance in this society and have watched with glee as things have 
gotten better and better over at NCUA over the years. And I 
wonder, you must have provided some information to the authoriz- 
ing committee that I would appreciate. I like to keep in my mind 
the relative importance in terms of a savings base for our country 
of the commercial banks, the savings and loans, life insurers, pri- 
vate pension funds, and credit unions as well as the trends of the 
growth in those assets. 

Is there a way that you could make that available in some form 
to the record and to me? 

Mr. Jepsen. Yes. 

Ms. Kaptur. My guess is your rate of growth has been a bit 
faster recently, and not being on the authorizing committee any 
more, it is hard to keep up. 

Mr. Jepsen. We will have that in detail for you for the record. 

Ms. Kaptur. All right I very, very much appreciate that. 



487 

[The information follows:] 

Asset and Savings Growth Trends in CU's 

Over the past three years (Dec. 1989-Dec. 1992), federally insured credit unions' 
assets have increased by $74.4 billion or 40 percent. Total savings for the same 
period have grown $65 billion or 39 percent. Total savings have increased approxi- 
mately 13 percent per annum. Approximately 5 percent in total asset and savings 
growth during this time may be attributed to the significant conversion of privately 
insured state-chartered credit unions to federal share insurance. At year-end 1992, 
the 12,653 federally insured credit unions represented over 95 percent of all credit 
unions. Federally insured credit unions have $258.4 billion in assets and hold $233 
billion in savings. 

INDUSTRY TRENDS 

Ms. Kaptur. And I would guess that your CAMEL reading and 
the measurement of the soundness of your institution is still the 
best in the industry, I would think. I mean, it used to be. 

Mr. Riley. Yes. 

Ms. Kaptur. And I haven't looked at those numbers recently. 

Mr. Jefsen. They are the best in the industry. We are thankful 
for that. And we are continually fine tuning to make that system 
and all of our systems reach more efficiency. 

agency overview 

Ms. Kaptur. I love this. There was a summary done for me of 
your testimony by my very capable staff member, Jeanine Diller; 
and she starts out with the background on the revolving loan 
funds. Central Liquidity Facility that says "CLF is a self-support- 
ing government corporation." I said, boy, I wish they all were. I 
wish I could figure out how to do that across our government. 

Mr. Jefsen. Our agency does not have one cent of tax dollars. 
We never have, and I don t believe we ever will. In fact we resist it. 

CDCU FARTICIFATION 

Ms. Kaftur. I know. And I think that is a reason for your 
strength. On the special commitment that you have made in the 
area of Community Development Credit Unions, I really want to 
thank you. 

I want to thank Mr. Swan for testifying so eloquently before the 
Banking Committee, and I think we have the administration's at- 
tention on this. And as the community development bank propos- 
al — whatever that is — moves along, we don't need anything new; 
we already have many examples of success around the country. We 
merely need to help them expand and do a better job at what they 
do. 

And in that regard, I did want to ask you — and I know the Chair- 
man has covered some of the Community Development Credit 
Union questions — but I am curious as to how many are now par- 
ticipating. We have 143 out there in the country; is that correct? 

And I am curious, how many are — there now participating and 
how many might apply in the future? 

Mr. Jefsen. Mr. Lewandowski. 

Mr. Lewandowski. At the present time, we have 41 credit unions 
that are participating in the program at this time. We also have 
applications because we have our open season, so to speak, that are 



488 

going to bring probably about 10 more new ones in addition to 
those applying for additional funds to get them back up to the 
maximum limit. 

We will be presenting to the NCUA Board at their April meet- 
ing, recommendations and changes in regulation, that would allow 
all of these community development Credit Unions to receive tech- 
nical assistance whether they are in the program or not. And that 
is one significant change we did not have before. In the past you 
would have to be participating in order to get the technical assist- 
ance. We just felt it was necessary to do it. 

So I would think that would open up the doors to these credit 
unions to come and get the help and assistance they need, and in 
return it would be a better operation for them and their members. 

CREDIT UNION MOVEMENT 

Ms. Kaptur. I appreciate it. You wouldn't have to do this. You 
have a lot of the healthy, big credit unions that are out there. But I 
think that the special expertise of credit unions to help our coun- 
try, really, has not been fully tapped, especially in areas that I like 
to describe as third-world nations within the United States. And 
the credit union movement has such tremendous international ex- 
perience. 

And the prior panel that was up here, we were talking about 
values and how do you create values in ownership in society. And 
one of the women from the Neighborhood Reinvestment Corpora- 
tion said, one of the most important ways you do that is by creat- 
ing value, especially in the area of home ownership. And I think 
one can say value in the way of an account and understanding 
what money is and how do you make money work for growth. And 
I just think your ability to reach people in some of these areas and 
especially with the administration's interest in helping people 
move up the ladder of economic opportunity is unparalleled. And I 
think the credit union movement can really make a difference in 
this country. So I appreciate the carefulness. We don't w£int you to 
create disasters. We don't want you to create anj^hing. We want 
you to draw on the will of the energy of people who are really out 
there. But I am very excited about what this can do for our coun- 
try. 

CDCU GUIDANCE 

Mr. Jepsen. I addressed that earlier with the Chairman and sug- 
gested that we, in our careful construction in implementing this 
program and putting it in place so that there is maximum partici- 
pation. We must lead with our hearts as the people from the com- 
munity do; but we also emphasize that we have to have both heart 
power and head power to make these credit unions work. And that 
does not just include providing access to credit but the value of 
having guidance so that these people not only have access to credit 
but they become better managers of their own personal funds and 
their own being and they have an opportunity, as you say, for 
home ownership and the type of things that build people's charac- 
ter. 



489 

IMPORTANCE OR CDCU's 

This philosophy is woven into the very fabric of everything that 
we put out in this particular area of CDCUs. 

Ms. Kaptur. I am curious whether in the President's — or whoev- 
er they appointed over there on welfare reform — whether you have 
received any contact from the administration in participating in 
the welfare reform. 

Mr. Jefsen. To the best of my knowledge, none. 

Ms. Kaptur. That is what I figured. I will tell you that when Mr. 
Cisneros comes before our committee, one of the questions I am 
going to ask him is, in how many of the major urban housing 
projects of this country do we have credit unions? 

And I have a hunch what the answer is going to be. It is not 
going to be very much. He may not know, but I think — I am very 
interested in planting seeds in many places so people learn how to 
use their own money. And I think the public housing authorities 
have not been very helpful in helping people, save money and 
learn how to make money work for their own future. And we just 
have enormous — I don't have any tower buildings in my city. But I 
have been through plenty of them around the country. 

And when you think of the amount of money that goes in there 
in checks — whether they are Social Security checks, welfare 
checks — these are the standards that are used in those neighbor- 
hoods around the country. The credit union movement can really 
make a difference in working with church groups and other groups. 
And this vehicle can be important to many of these places, just a 
shell now, but we certainly have authority in housing legislation 
for other services to be offered on site. And that would be one area 
where I would be very interested in working with him. 

Could you tell me what proportion of your appropriation for the 
revolving loan fund would be dedicated to do technical assistance? 

CDCU TECHNICAL ASSISTANCE 

Mr. Lewandowski. We have collected, since we have been ad- 
ministering the program, 239,000 in interest income on the money 
that has been placed in community credit unions. They pay inter- 
est of 2 percent on these loans. But within our statute, we have a 
regulation that limits us to a $120,000 a year spending limit on 
technical assistance. 

Mr. Jepsen. We can provide this assistance from the interest 
earned on the loan portfolio. 

Ms. Kaptur. 120,000, overall, in the country? 

Mr. Lewandowski. Per year, yes. And it is extremely difficult to 
earn this technical assistance provision because in order to gener- 
ate $120,000 per year, I have to have $6 million outstanding in 
loans every day of the year. 

So we are using some of the surplus that has been generated 
over previous years to pay for that. Last year we didn't even get off 
the ground running with technical assistance; we were just inter- 
ested in getting the program running. 

Last year we paid out approximately $77,000 in technical assist- 
ance. And through yesterday, which is six months of our fiscal 
year, we have paid out about $54,000. 



490 

Ms. Kaptur. Now, if we were to increase the appropriation for 
the revolving loan fund, would that increase that technical assist- 
ance or not? 

Mr. Lewandowski. Yes, this would raise the technical assistance 
costs. We would have to make a change to our regulation because 
our regulation right now limits it at 120,000. This could be done 
through the NCUA board? 

Mr. Fenner. We could change the regulation. I think the only 
practical limitation is we would want to only use the interest and 
not the principle to provide the technical assistance because that 
money doesn't come back into the fund. 

Mr. Jepsen. I think we should also point out one of the reasons 
we have that limited amount of money, as he said, you would have 
to loan six million at 2 percent. That figures out to a 120,000. 

We lowered the interest rate with the down turn of the economy 
to provide the best deal possible for these people to use this money 
and not have a heavy debt to service or a heavy rate of interest to 
service it. We lowered it from what it was originally. 

Mr. Lewandowski. Originally, 3 percent. We cut it back to 2. 
And those credit unions that were initially at 3 percent, were also 
lowered to 2 percent. 

Another factor that could be considered if additional funds 
become available, is that the rate could possibly drop to 1 percent 
and still provide sufficient income to cover the technical assistance 
and any losses that may be anticipated down the road. 

Ms. Kaptur. Any additional detail you could provide on that par- 
ticular program, I would like to watch it grow over the years. 

[The information follows:] 



491 



COMMUNITY DEVELOPMENT REVOLVING LOAN FUND 
MARCH 31, 1993 

BALANCE SHEET 



ASSETS 

Cash 

Loans 

Reserve for Loan Losses 

Interest Receivable on Loans 



TOTAL ASSETS 

LIABILITIES 
Accounts Payable 
TOTAL LIABILITIES 

EQUITY 

Original Funds Advanced 
Retained Earnings-Prior Year 
Retained Earnings-Current Year 

TOTAL EQUITY & LIABILITIES 



CURRENT MONTH 



$ 


1 


,582 


,222 


.99 




5 


,165 


,500 


.00 






-67, 


,738, 


.14 






20, 


,570, 


.54 


$ 


6, 


,700, 


,555. 


.39 


$ 




25, 


,000, 


.00 


$ 




25, 


,000, 


.00 


$ 


6, 


,000, 


,000. 


,00 






682, 


,915. 


.81 






-7. 


,360, 


,42 


$ 


6, 


,700, 

= = = = = 


,555. 

= = = = = 


,39 



INCOME STATEMENT 



INCOME CURRENT MONTH 

Interest on Loans $ 8,823.06 

Total Revenue $ 8,823.06 

EXPENSES 
OTHER SERVICES 

Technical Assistance Services $ 27,870.00 



Total 


$ 


27,870. 


.00 


FINANCIAL COSTS 








Provision for Loan Losses 


$ 
$ 


882, 


.31 


Total 


882. 


.31 


Total Expenses 


S 


28,752, 


.31 



YEAR-TO-DATE 
$ .52,561.49 
$ 52,561.49 



$ 54,665.75 



NET PROFIT (LOSS) 



S -19,929.25 



$ 


54, 


,665, 


.75 


s 


5, 


,256. 


.16 


s 


5, 


,256. 


.16 


$ 


59, 


,921, 


,91 


$ 


-III 


,360, 


.42 



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494 

Ms. Kaptur. And how are the repayments, by the way? 

Mr. Lewandowski. Everyone is up to date as of yesterday. 

Ms. Kaptur. All right. All right. 

Mr. Jefsen. And just for perspective, some of that must be at- 
tributed to the senior staff and the people who put this program 
together and structured it. 

We got some criticism for it. It was too slow, too restrictive. 
There is a tendency for those who, as I say, lead from their hearts. 
And that is an admirable thing to not want any guidelines or any- 
thing to follow. Just give us the money. 

TYPES OF CDCU AFFILIATION 

Ms. Kaptur. The government has done that enough. We don't 
want to do that any more. 

Mr. Jepsen. To bestow it on people, you see. We built into this 
structure a sense of direction, responsibility, and some basic pru- 
dent financial principles that are mandatory, and we have been 
firm about it. We have taken some flak for it, but everybody is 
better off. I mean, I am talking about the people that we want to 
be better off, first, and that is the recipients. 

Ms. Kaptur. Could I ask, for the record, also if you could, let me 
know how many of those 143 CDCU's have any church affiliation 
or maybe began on a church basis? I would appreciate it. Or if you 
divide that 143 into the type of affiliation that help them, really 
provided the energy, even though it is a Community Development 
Credit Union, I would be very curious about that. 

Mr. Lewandowski. We will get that for you. 

[The information follows:] 

Religious Based CDCUs 

There are 32 limited income credit unions as designated by NCUA whose princi- 
pal field of membership classification is religious affiliation. A break-down for all 
community development credit unions by field of membership is provided as well £is 
an explanation of NCUA's type-of-membership classification system. 



495 



RECAP OF TYPE OF MEMBERSHIP - LOW INCOME CREDIT ONIONS 

010 - (2) Cooperatives 

020 - (5) Fraternal, Professional, and Trade Associations 

030 - (32) Religious 

040 - (2) Labor Unions 

099 - (15) Associational Groups Not Elsewhere Classified 

200 thru 803 - (12) Occupational 

902 - (22) Government Assisted Urban Groups 

909 - (18) Other Urban Community Groups 

952 - (2) Government Assisted Rural Groups 

959 - (29) Other Rural Community Groups 



496 



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500 



Appendix C 

TYPE-OF-MEMBERSHIP 
CLASSIFICATION SYSTEM 



The National Credit Union Administration 
(NCUA) has established a type-of-membership 
classification system. This system provides infor- 
mation on credit unions in major associational, 
community, industrial service and occupational 
groups. The classification system has been 
designed to be flexible and to produce data 
needed for program planning, analysis and 
research purposes. 

Credit unions have individual differences. For 
example, membership affiliation, geographic 
location and industrial or associational attach- 
ment of the credit union are significant factors 
in determining the general nature of the problems 
the credit union may encounter and in evaluating 
economic feasibility for chartering and other pur- 
poses. Thus, these factors must be identified and 
analyzed in order for NCUA and the credit union 
industry to respond effectively to any changes 
occurring or anticipated. 

The classification system uses a three digit 
code. The first number in each three digit code 
identifies the common bond type: Associational 
(010-099), Occupational (100-700), Multiple 
Groups (800) and Residential (Urban and Rural 
Community) (900). As appropriate, the next two 
numbers in each digit identify the specific 
categories, e.g., 030 — religious groups within the 
associational common bond. Credit unions that 
have more than one group wiU receive a classifica- 
tion that most nearly represents the common 
bond of the majority of its potential members. 
For example, XYZ FCU's membership comprises 
51% banking employees, 45% mixed associa- 
tional groups and 4% senior citizens groups. The 
credit union's type of membership classification 
would be 500^Finance, Insurance and Real 
Estate. 

The Multiple Group classification has the 
three-digit code 800. This classification will be 
used for credit unions that have more than one 



group with no single group predominant, e.g., 
industrial parks, shopping centers. The nine hun- 
dred (900) classification is used for all urban and 
rural community groups. 

Limited income and other types of special 
codes are addressed in a separate classification 
system. 

The classification system presented in this Sec- 
tion covers all federally insured credit imions. The 
Section will be helpful to credit union officials, 
trade organizations and others in the use of 
NCUA data classified by type-of-membership. 

This Section is a revision of the "Type- 
of-Membership Classification for Federally In- 
sured Credit Unions" guide issued by NCUA in 
October 1975. 

ASSOCIATIONAL (010-099) 

Federally insured credit unions whose common 
bond consists primarily of individuals who par- 
ticipate in activities developing common loyalties, 
mutual benefits and mutual interests are classified 
as associational groups. 

010— COOPERATIVES 

Examples: Agricultural, production and mar- 
keting 

Consumer — retail mercantile 
Electric 
Housing 
Other cooperatives 

020— FRATERNAL, PROFESSIONAL AND 
TRADE ASSOCIATIONS 

Examples: Knights of Columbus, Knights of 
Pythia, National Grange, Farm 
Bureau, American Leather Asso- 
ciation, Kidney Association and 
similar groups. 

C-1 



501 



030— RELIGIOUS 

Examples: Catholic, Jewish, Muslim, Protes- 
tant, Others. 

040— LABOR UNIONS 

Examples: Carpenters, Electrical Workers, 
Food and Beverage Workers, Per- 
forming Arts, Retail Clerks and 
Workers, Teamsters, Typographic 
and Printing Workers, Others. 

050— STUDENT CREDIT UNIONS 

Examples: Students enrolled (graduate, un- 
dergraduate, full time, part time) 
in any junior college, technical in- 
stitute, college and university. 

060— CORPORATE CREDIT UNIONS 

Examples: Credit unions organized primarily 
to provide liquidity and other serv- 
ices to member credit unions. 

099— ASSOCIATIONAL GROUPS NOT 
ELSEWHERE CLASSIFIED 



OCCUPATIONAL (100-799) 

Federally insured credit unions whose common 
bond is limited to members employed by the same 
enterprise are classified as occupational groups. 
Persons sharing this common bond may be 
geographically dispersed. Employees of a parent 
corporation and its wholly-owned subsidiaries 
and persons under contract who work regularly 
for an enterprise may be considered under a single 
occupational bond. Occupational common bonds 
may include agriculture, mining, transportation, 
communications, public utilities, wholesale and 
retail trade, fmance, insurance, real estate, serv- 
ices and government. 

100— NATURAL RESOURCES 

101 — Agriculture, forestry, fisheries, mining 
and construction 

Examples: Commercial and noncommercial 
farms, timber tracts, commercial 
fishing, other agricultural services. 



forestry services such as firefighting 
and reforestation, establishments 
primarily engaged in commercial 
fishing, hunting and trapping or in 
the operation of game preserves. 



102 — Mining 
Examples 



Companies involved in the extrac- 
tion of minerals occurring nat- 
urally: solids such as coal and ores; 
liquids such as crude petroleum; 
and gases such as natural gas. Also 
includes companies primarily en- 
gaged in exploration and develop- 
ment of mineral properties. 



200— MANUFACTURING 

201 — Food and kindred products 

Examples: Establishments manufacturing 
foods and beverages for human 
consumption, prepared feeds for 
animals and fowls, and certain 
related products. 

202— Textile mill products 

Examples: Establishments manufacturing all 
types of textiles. 

203 — Apparel and other finished products 
make from fabrics and similar materials 

Examples: Establishments producing clothing 
and fabricated products by cutting 
and sewing purchased woven or 
knit textile fabrics and related 
materials such as leather, rubber- 
ized fabrics, plastics and furs. 

204 — Lumber and wood products, except 
furniture 

Examples: Establishments operating different 
types of lumber mills. 

205 — Furniture and fixtures 

Examples: Establishments engaged in manu- 
facturing household, office, public 
building and restaurant furniture; 
and office and store fixtures. 



C-2 



502 



206 — Paper and allied products 

Examples: Establishments manufacturing pulps 
from wood and other cellulose 
fibers and rags; the manufacture of 
paper and paperboard; and the 
manufacture of paper bags, boxes 
and envelopes. 

207 — Printing, publishing and allied industries 

Examples: Establishments engaged in printing 
by one or more of the common 
processes such as letterpress, lith- 
ography, gravure or screen, and 
those establishments which per- 
form services for the printing trade 
such as bookbinding, typesetting, 
engraving, photoengraving, and 
electrotyping. Also included are 
estabhshments engaged in pub- 
lishing newspapers, books and 
periodicals, regardless of whether 
or not they do their own printing. 

208— Chemicals and allied products 

Examples: Establishments producing basic 
chemicals and establishments man- 
ufacturing products by predom- 
inantly chemical processes. Such 
chemicals include industrial chem- 
icals, plastic materials and synthet- 
ics, drugs, soap detergents and 
cleaning preparations, perfumes, 
cosmetics and other toilet prepara- 
tions, paints, varnishes, lacquers, 
enamels and allied products, mis- 
cellaneous chemical products. 

209 — Petroleum, refining and related industries 

Examples: Establishments primarily engaged 
in producing gasoline, kerosene 
distillate fuel oils, residual fuel oils, 
lubricants and other crude petro- 
leum. 

210 — Rubber and miscellaneous plastics 
products 

Examples: Establishments manufacturing tires 
and inner tubes, fabricated rubber 



and plastic products not elsewhere 
classified. 

211 — Leather and leather products 

Examples: Establishments engaged in tanning, 
currying, and finishing hides and 
skins, and establishments manufac- 
turing leather and artificial leather 
products. 

212 — Stone, clay, glass and concrete products 

Examples: Establishments engaged in manu- 
facturing flat glass and other glass 
products, cement, structural clay 
products, pottery, concrete and 
gypsum products, cut stone prod- 
ucts, abrasive and asbestos prod- 
ucts, etc., from materials taken 
principally from the earth in the 
form of stone, clay and sand. 

213 — Primary metal industries 

Examples: Establishments engaged in smelting 
and refining of ferrous and non- 
ferrous metals from ore, pig, or 
scrap; in the rolling, drawing and 
alloying of ferrous and non-ferrous 
metals, and in the manufacturing of 
castings, forgings; and other basic 
products of ferrous and non-fer- 
rous metals; and in the manufac- 
ture of nails, spikes and insulated 
wire and cable. 

214 — Fabricated metal products, except guided 
missiles, machinery and transportation 
equipment 

Examples: Establishments engaged in fabrica- 
ting ferrous and non-ferrous prod- 
ucts such as metal cans, tinware, 
hand tools, cutlery, general hard- 
ware, nonelectric heating appara- 
tus, fabricated structural metal 
products, metal stampings and a 
variety of metal and wire products 
not elsewhere classified. 



C-3 



503 



215— Machinery except electrical 

Examples: Establishments where machines are 
powered by built-in or detachable 
motors, with the exception of elec- 
trical household appliances. Por- 
table tools, both electric and pneu- 
matic power, are included in this 
group but hand tools are classified 
in major group 214 (fabricated 
metal products, except guided 
missiles, machinery and transpor- 
tation equipment). 

216 — Electrical and electronic machinery, 
equipment and supplies 

Examples: EstablishmenU that manufacture 
household appliances but industrial 
machinery and equipment powered 
by built-in or detachable electric 
motors is classified in major group 
215 (machinery except electrical). 

217— Transportation equipment — motor vehi- 
cles 

Examples: Establishments that manufacture 
motor vehicles and motor vehicle 
equipment. 

218— Transportation equipment — aircraft and 
parts 

Examples: EstablishmenU that manufacture 
aircraft and parts. Also includes 
manufacturing space vehicles and 
parts, tanks and tank components 
and guided missiles. 

219— Transportation equipment— Ship and 
boat building and repairing 

220— Transportation equipment— Railroad 
equipment 

Examples: EstablishmenU primarily engaged 
in building streetcars, trackless 
trolley buses and railway cars. 

221— Transportation equipment — Other 

Examples: EstablishmenU engaged in manu- 
facturing motorcycles, bicycles and 
other items not elsewhere classified 
in codes 217-220. 



222 — Measuring, analyzing and controlling 
instruments; photographic, medical and 
optical goods; watches and clocks 

Examples: Establishments engaged in manu- 
facturing mechanical-measuring, 
engineering, laboratory and scien- 
tific research instruments; optical 
instruments and lenses; surgical, 
medical and dental instruments, 
equipment and supplies; ophthal- 
mic goods, photographic equip- 
ment and supplies; and watches 
and clocks. 

229— Miscellaneous manufacturing industries 

Examples: Establishments engaged in manu- 
facturing tobacco, jewelry, silver- 
ware and plated ware, musical 
instrumenU and parts, toys, amuse- 
ments, sporting and athletic goods, 
pens, pencils and other office and 
artists' materials, furs, signs and 
other miscellaneous manufacturing 
industries not elsewhere classified. 

300— TRANSPORTATION, COMMUNICA- 
TION, ELECTRIC, GAS AND SANI- 
TARY SERVICES 

Examples: Establishments in this classification 
to a large extent are legally recog- 
nized as having a semipublic char- 
acter. Most of the establishments 
are regulated by commissions or 
other public authorities as to the 
rates or prices they may charge and 
the services they may render. 

30 1 — Transportation — railroad 

Examples: Establishments include railroads, 
sleeping car and railroad express 
services. 

302— Transportation— local, surburban and 
interurban passenger 

Examples: Companies or systems providing 
municipal passenger transporta- 
tion, taxicabs and intercity and 
highway transportation including 



C-4 



504 



school buses, charter services and 
passenger terminals and service 
facilities. 

303— Transportation— Motor freight and ware- 
housing 

Examples: Establishments engaged in local and 
long distance trucking, transfer and 
draying services, storage of goods, 
terminal facilities and warehousing. 

304 — Transportation— water 

Examples: Establishments engaged in freight 
and passenger transportation over 
water including towing, excursion 
boats and water taxis. 

305— Transportation — air 

Examples: Establishments engaged in furnish- 
ing transportation by air including 
airports and terminal services. 

306 — Transportation — other 

Examples: Establishments not elsewhere classi- 
fied in codes 301—305. 

3 1 — Communication 

Examples: Establishments include telephone, 
telegraph, radio and television, and 
other. 

311— Electric, water, gas and sanitary services 

Examples: Establishments include electric serv- 
ices, gas production and distribu- 
tion, combination electric and gas, 
and other utility services, water 
supply, sanitary services, irrigation 
systems, other. 

400— WHOLESALE AND RETAIL TRADE 

401— Wholesale 

Examples: Establishments engaged in wholesale 
trade such as selling goods to trading 
facilities or to industrial, commer- 
cial, institutional and professional 
users, and bringing buyer and seller 
together. Examples of such establish- 



ments include: motor vehicles and ' 
automobile equipment; drug, chemi- 
cals and allied products— raw mate- 
rials, electrical goods; hardware, 
plumbing and heating equipment, 
and supplies. 

402— Retail Trade 

Examples: Establishments that are classified by 
kind of business according to the 
principle lines of commodities sold 
(groceries, hardware, etc.) or the usual 
trade designation (drug store, 
department store, etc.). Examples 
of such estabhshments include: 
building materials, hardware and 
farming equipment; general mer- 
chandise (department stores, mail 
ord^r houses, etc.); retail trade — 
food; automobile dealers and gaso- 
line service stations; retail trade — 
apparel and accessories; retail 
trade — eating and drinking places; 
retail trade — miscellaneous retail 
stores. 

500— FINANCE, INSURANCE AND REAL 
ESTATE 

Examples: Establishments such as Federal 
Reserve Banks, commercial and 
stock savings banks, mutual savings 
banks, and banks and trust com- 
panies. Also includes establish- 
ments performing functions closely 
related to banking such as foreign 
exchange centers, check cashing 
agencies and currency exchanges, 
safe deposit companies, clearing 
house associations, establishments 
incorporated in the United States 
and engaged in international and 
foreign banking, credit agencies 
other than banks, insurance com- 
panies, security and commodity 
brokers, dealers and exchanges; real 
estate operators, and owners and 
lessors of real property as well as 
buyers, sellers, developers, agents 



C-5 



505 



and brokers; and holding and other 
investment companies. 

600— SERVICES AND CONSTRUCTION 

Establishments engaged primarily in rendering a 
wide variety of services to individuals and busi- 
ness establishments, and in the building field. 

601 — Services 

Examples: Establishments engaged in hotels 
and other lodging places; personal 
services (laundries, beauty salons, 
barber shops, shoe repair services, 
etc.); advertising agencies; con- 
sumer credit reporting agencies, 
collection agencies; private employ- 
ment agencies; automobile repair, 
automobile services, and garages; 
motion pictures, and amusement 
and recreation services. 

602— Health 

Examples: Establishments that include associ- 
ations or groups primarily engaged 
in providing medical or other health 
services to members, when the field 
of membership is limited to em- 
ployees of such groups. Such es- 
tablishments may include non- 
government hospitals, medical and 
dental laboratories, health and 
allied services, not elsewhere clas- 
sified. 

603— Construction 

Examples: Establishments engaged in building 
and heavy construction, and special 
trade contractors who are primarily 
engaged in specialized construaion 
activities such as plumbing, paint- 
ing, electrical work, and carpentry. 
Also, includes installation of pre- 
fabricated building equipment and 
materials by general contractors 
and special trade contractors. 



604— Other 

Examples: Service and construction groups 
not elsewhere classified. 

700— GOVERNMENT AND EDUCATION 

701 — Federal Government — Civilian 

Examples: Establishments that include civiliem 
employees in the various depart- 
ments, agencies, and offices of the 
Federal including employees in 
Federal government hospitals. 

702 — Federal Government — Military 

Examples: Establishments that include civilian 
employees if they are together with 
military employees in the field of 
membership. 

703 — State Government 

Examples: Establishments that include all state 
agencies and the national guard. 

704 — Local Government 

Examples: Establishments that include county 
and city agencies, including hospi- 
tals, police and fire departments. 

705 — International Government 

Examples: Establishments that include inter- 
national government organizations 
Establishments that include county 
such as the United Nations and 
World Bank. 

706 — Education — Colleges and Universities 

Examples: Establishments that include em- 
ployees of private and trade schools, 
colleges and universities and other 
higher educational institutions. 

707— Education— Elementary and Secondary 

Examples: Establishments that include em- 
ployees of private and trade 
schools, elementary and secondary 
school systems. 



C-6 



506 



799 — Occupational groups not otherwise 
classified 

MULTIPLE GROUPS (800) 

Credit unions whose members comprise multi- 
ple groups (associational and occupational) with 
no single group predominant, e.g. shopping 
centers, industrial parks. 

801 — Multiple groups primarily associational 

802 — Multiple groups primarily occupational 

803— Multiple groups primarily mixed 



COMMUNITY— URBAN AND RURAL (900) 

Community groups that represent a well-defined 
neighborhood, community or rural district. The 
distinction between urban and rural is based on 
the latest Census definitions. 

902 — Government assisted urban groups 

909— Other urban community groups 

952— Govenunent assisted rural groups 

959 — Other rural community groups 

999— Unclassified 



C-7 



507 



CLOSING REMARKS 



Ms. Kaptur. Thank you. 

Thank you, Mr. Chairman. 

Mr. Stokes. Sure. Anything further? 

Mr. Lewis. No, I am fine. 

Mr. Stokes. Senator Jepsen, we appreciate the job that you are 
doing, you and your colleagues. I am particularly pleased with 
what you are now doing in the area of the Community Develop- 
ment Credit Unions. I think that is an area which we are making 
progress. And it is something good to see, and we have had a good 
hearing. I appreciate, very much, your appearance here. 

Mr. Jepsen. Thank you, Mr. Chairman, for your courtesy. Thank 
you. 

[Questions and answers for the record and the justifications 
follow:] 



508 



QUESTIONS FROM THE HONORABLE ESTEBAN E. TORRES 

HUD, VA, INDEPENDENT AGENCIES SUBCOMMITTEE 

NATIONAL CREDIT UNION ADMINISTRATION 

APRIL 1, 1993 



Question: I am aware of the survey of the industry on this matter that was 
conducted by the Credit Union National Association. Has the NCUA obtjuned any 
information yet on the survey's findings? Do you have any idea what this survey cost 
to conduct? How many comments has NCUA received on the proposed Truth in 
Savings regulations? Has NCUA received an official comment letter yet from 
CUNA on Truth in Savings? If so, can you share with me the primary areas of 
concern? 

Answer: On April 1, 1993, the comment period closed for NCUA's proposed 
regulation (57 FR 56686-724) implementing the Truth in Savings Act (P.L. 102-242, 
12 U.S.C. 4301 eq seq.). Our initial count shows 378 comment letters. The agency 
did receive an official (27 page) comment letter from the Credit Union National 
Association (CUNA) at the close of the comment period. This letter has been 
included with oiu^ response to your questions. We would note that on pages 2 and 3 
of the CUNA letter, the trade association Usts 13 "positions" on "major issues under 
truth-in-savings." NCUA is aware of the CUNA survey. We have not been privy to 
the cost of the survey nor its complete details. CUNA does cite the survey on page 9 
of its comment letter. 

Question: When does NCUA expect to issue a final Truth in Savings rule? What 
do you expect the date for mandatory compUance to be? Do you foresee any delays 
in implementation of the Act? 

Answer: NCUA expects to have a final rule in place by September 19, 1993, the 
statutorily required deadline. At the present time, we anticipate allowing credit 
unions nine months after promulgation of a final rule to come under mandatory 
compUance. This would put mandatory compliance near June 1994. We note that 
pursuant to the Truth in Savings Act and the Housing and Community Development 
Act (P.L. 102-550) that amended it, the Federal Reserve Board gave commercial 
banks and thrifts nine months before mandatory compliance. NCUA believes that 
credit unions will experience some difficulties in implementing the final rule, 
particularly given new demands on data processing systems. We are most concerned 
with the unique needs and potential hardships that may be experienced by smaller 
credit unions. The agency will closely monitor problem areas as they arise. 



509 



ft 



CntUt Union 
NattonatAsaocMtton. Inc. 



CUN A & Affiliates S^neaoo leieonone 

*" * 805 1SmS»o«NW (2021682-4200 

4 Memoer ol the CreOil Union Sysrem Washinqton C 

20005-2207 



Apnl 1, 1993 

Ms. Becky Baker 

Secretsiry to the Board 

National Credit Union Administration 

1776 G Street, NW 

Washington, DC 20456 



RE: Proposed Truth-in-Savings Rule. 
Seaion 707 



Dear Ms. Baker: 



On behalf of the Credit Union National Association (CUNA), we are pleased to submit 
our comments on the Board's proposed rule to implement the Truth-in-Savings Act, 
which appeared in the Federal Register on November 30, 1992. CUNA is the only 
national trade association representing the country's more than 13.000 federal and state 
credit unions through our 52 league affiliates. 

The proposal would require all credit unions to provide disclosures of dividend rates, 
fees and other terms before accounts are open and upon request. It would also require 
notice prior to maturity; notice of adverse changes in account terms; and additional 
information to be included on periodic statements. The proposal would impose 
limitations on advertising and subject credit unions to substantial penalties for 
noncompliance. With the issuance of the proposed truth-in-savings rule, the agency 
withdrew its proposal that would have required federal credit unions to state in accoimt 
disclosures and in advertising that dividends are not guaranteed. 

Overview and Summary of CUNAV Positions 

The truth-in-savings regulation Ls the most important compliance issue facing credit 
unions and will require significant and costly changes for many credit unions. CUNA 
recognizes the difficult task set before the agency by Congress when it included the truth- 
in-savings law in the Federal Deposit Insurance Corporation Improvements Act of 1991. 
While the goal of the truth-in-savings law is commendable, the language of the statute is 
far too specific in some areas and far too ambiguous in others. 

Nonetheless, CUNA realizes the agency's rule must conform to the statute, and in large 
measure the proposal accomplishes this objective, although we are recommending some 
important changes as detailed below. CUNA commends the agency for its efforts to 



510 



Page 2 
April 1, 1993 

work with us to facilitate credit unions' understanding of the proposal We appreciate 
the informal meetings agency staff held for CUNA, NAFCU, and NASCUS, and we also 
appreciate agency attorneys participating in CUNA programs to help explain the 
proposal. 

CUNA's positions on key aspects of the proposal were developed by CUNA's task force 
on truth-in-savings, which included credit unions of varying asset sizes from across the 
country, as well as league representatives; CUNA's Governmental Affairs Committee; 
and the CUNA Board of Directors. Their views were shaped by comment letters leagues 
and credit unions filed with CUNA and NCUA and the survey CUNA conducted in mid- 
February regarding rollback accounts. 

The Truth-in-Savings Act directs NCUA to write a rule for all credit unions, 
"substantially similar" to the one issued by the Federal Reserve Board, "taking into 
accoimt the unique nature of credit unions and the limitations under which they may pay 
dividends." We believe that NCUA has made a good faith effort to modify the Federal 
Reserve Board's Regulation DD in several areas where appropriate, but as our 
comments below indicate, we do not feel the agency has utilized the full extent of its 
authority to address the unique characteristics of credit unions and their accounts. 

CUNA's comments on truth-in-savings are guided by two fundamental principles, that the 
regulatory burden of compliance for all credit unions should be minimized to the fullest 
extent possible under the law and that credit unions should retain the maximum 
flexibility, consistent with the requirements of the statute, to design share, share draft, 
and share cenificate accounts that meet the needs of their members. 

In view of those underlying principles, CUNA takes the positions listed below on major 
issues under truth-in-savings. (These points are not necessarily in the order they appear 
in CUNA's detailed comments which follow.) 

# NCUA should continue to permit credit unions to offer rollback accoimts, with 
full and fair disclosure. While the federal government should not limit the 
choices credit unions have to design accounts for their members, CUNA 
encourages credit unions using rollback accounts to convert to dsuly dividend 
accoimts or to offer daily dividend accounts as a choice for their members. 

# NCUA should exempt credit unions that do not have data processing capabilities 
from the annual percentage yield earned (APYE) disclosure requirements for 
periodic statements. 



511 



Page 3 
April 1, 1993 

# NCUA should remove the redundancy from proposed account disclosures and 
advertising requirements for rollback accounts. 

# NCUA should delete the requirement that dividends are paid from available 
earnings and re-evaluate the issue of whether federal credit unions may guarantee 
dividends. NCUA should estabUsh an advisory group to help it review this issue. 

# NCUA should define "variable rate account" as any account in which the dividend 
rate may change after the account is opened, unless the credit union contracts 
with the member to provide 30 days advance notice of rate decreases. 

# NCUA should allow credit unions to pay dividends on increments of the par value 
of a share when the value is $5 or less. 

# NCUA should limit credit unions' requirements to provide disclosures to members 
and potential members. 

# NCUA should reduce the requirements for responses to oral inquiries, which are 
uimecessary and not mandated by the statute. 

# NCUA should clarify that credit unions may provide periodic statement 
disclosures based on dividends paid and credited or on dividends accrued. 

# NCUA should develop an official commentary to the truth-in-savings rule. It 
should be issued for comment and adopted in final form well in advance of the 
compliance date for the final rule. 

# If substantial changes are made to the proposed rule and forms, NCUA should 
republish a new proposal for conmients. 

# NCUA should establish a task force of credit union representatives with whom 
agency staff would discuss the general nature of the agency's final rule, including 
operational problems and new regulatory burden issues it raises, before the rule is 
published. The task force would also help the agency monitor operational 
concerns with truth-in-savings during the first two years of credit union 
compUance. (This could be the same group we are reconmiending NCUA 
organize to look at whether federal credit unions may guarantee dividends.) 

# NCUA should not require compliance with a final regulation before January 1995. 



512 



Page 4 
April 1, 1993 



Table of Contents 

Page 

Regulatory Burden 5 

Timing of the Final Rule 5 

Scope of NCUA's Authority 6 

Guaranteeing Dividends 7 

Purpose of TIS , % 

Coverage g 

Effect on State Laws 9 

Definition of Terms 9 

Rollback Accounts 9 

Account 10 

Advertisements u 

Bonus 11 

Business Day n 

Dividend Period 12 

Fixed Rate Account 12 

Member 12 

Periodic Statement 13 

Tiered Rate Accounts 13 

Variable Rate Accounts 13 

General Disclosure Requirements 14 

Roimding 14 

Voluntary TIS Programs 14 

Delivery of Disclosures 15 

Disclosures upon Request 16 

Content of Initial Disclosures for Rollbacks 16 

Potential Loss of Principal 17 

Notice to Existing Accountholders 17 

Change in Terms Notices 17 

Notices Prior to Maturity 17 

Periodic Statements, Generally 18 

Periodic Statements for Rollbacks 20 

Payment of Dividends 21 

Determiiution of Minimum Balance 21 

Payment on Increments of Par Value 21 

Date Dividends Begin to Accrue 21 

Advertisements, Generally 21 

Advertisements for Rollback Accounts 22 

Advertisements for Bonuses 22 

Exemption for Certain Advenisements 23 



513 



Page 5 
April 1. 1993 



Enforcement 23 

Record Retention 23 

Preemption 24 

Regulatory Flexibility Act 24 

Model Forms 24 

Conclusion 25 

Regulatory Burden of Compliance 

The agency has asked for comments on how the regulatory burden of compliance with 
truth-in-savings can be limited and still meet the requirements of the aa. Below in this 
letter we present a number of areas in which compliance costs can be minimized, such as 
reducing the repetitious disclosures for rollback accounts; limiting the requirements for 
oral responses to inquiries; and exempting credit unions without data processing 
capabilities from the APYE periodic statement disclosure requirements. Nonetheless, we 
believe it will be several months after credit unions have lived with truth-in-savings 
requirements before we have even an approximate understanding of how much this rule 
will cost them. 

To help NCUA assess the regulatory burden of truth-in-savings compliance for credit 
unions, we believe it would be productive for the agency to establish a task force 
comprised of credit union officials and their representatives. In light of the agency's 
concerns about regulatory burden, it would be appropriate for NCUA to discuss with 
such a task force the general nature of its draft fmal rule before it is published in final 
form to identify new regulatory burdens and operational concerns as a result of changes 
in the proposal. Such a task force could also be brought together over the course of the 
first two years of implementation to help the agency monitor compliance issues and 
regulatory burdens. Below we recommend NCUA form an advisory group to help it 
review the issue of whether dividends may be guaranteed by federal credit unions. 
These could be the same people who serve on the task force we are recommending to 
help NCUA identify and monitor regulatory burdens associated with truth-in-savings. 

We believe one important way in which the agency could help alleviate the burden of 
compliance with truth-in-savings would be to develop an official staff commentary which 
could give guidance and provide examples to credit unions of how the rule works. Such 
a commentary should be issued for comment and adopted in final form with enough time 
so that it will be useful to credit unions in understanding the rule before it takes effect. 

The Federal Reserve Board is currently developing a survey of banks regarding how 
costly and onerous truth-in-savings will be for them to implement. We urge NCUA to 
plan and budget for a similar survey of credit unions in early 1995. 

Timing of the Final Rule 

Another issue that could be addressed imder regulatory burden is the timing of the final 
rule. We understand that the agency intends to consider a final truth-in-savings rule 
during the NCUA Board's meeting in August. 



514 



Page 6 
April 1, 1993 

CUNA and undoubtedly others have recommended a number of key changes in the 
agency's proposal. If substantial changes are made in the rule, we urge the agency to 
consider seeking comments on a revised proposal. We believe there is sufficient time for 
the agency to issue another proposal based on the comments you have received, for a 
brief comment period, and still be able to adopt a final rule by the end of the summer. 

We also urge NCUA to provide as much time as is possible and impropriate for credit 
unions to get ready for truth-in-savings. The statute is silent as to when credit unions 
must begin complying with its provisions, leaving it to NCUA to set the compliance 
deadline. 

We believe at least 15 months from the publication date of the final rule is a reasonable 
time, considering that credit unions, particularly those without paid workers or data 
processing capabilities, will likely need at least that much time to review current account 
poUcies, structures, and disdosxu-es; revise poUcies, if necessary, arrange to meet all the 
disclosure requirements; review their advertising and make changes, where necessary, 
and train appropriate staff and volunteers. 

Scope of NCUA's Authority 

Page 56686 of the Federal Register in the supplementary information discusses NCUA's 
authority under the Truth-in-Savings Act to write a rule for credit unions. The agency 
states that in writing a rule that is substantially similar to that of the Federal Reserve 
Board, NCUA "may" take into account the unique namre of credit unions. We believe 
that Congress' directive to NCUA is stronger than what the supplementary information 
indicates. NCUA must take into consideration the unique nature of credit unions, and 
the final rule and accompanying supplementary information should be revised 
accordingly. 

Further, page 56688 of the Federal Register states the agency "may rewrite those 
portions of Regulation DD where credit unions are unique or where the limitations on 
which dividends are paid apply." This reading of NCUA's authority is too restrictive. 
The stanite under Section 269 authorizes NCUA to deviate fi-om the Truth-in-Savings 
Act and from Regulation DD to provide for adjustments and exceptions for any class of 
accounts as in the judgment of (NCUA) are necessary or proper to carry out the 
purposes of the act, to prevent evasion of the aa or to facihtate compliance for credit 
unions. This section of the supplementary information should be revised to reflea the 
full scope of NCUA's authority under the Act. 



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April 1, 1993 



Guaranteei ng Dividends and Withdrawal of Proposed Change to 12 CFR 701 J.S 

The supplementary information on page 56687 discusses at length the faa that NCUA 
has interpreted the Federal Credit Union Act to preclude federal credit unions from 
guaranteeing dividend rates. Further, under the truth-in-savings proposal, federal credit 
unions would be required to state in initial disclosures and in advertisements that 
provide the annual percentage yield (APY) that dividends are paid from available 
earnings. 

CUNA has historically agreed with the agency that dividends may not be guaranteed and 
that federal credit unions should disclose that dividends are paid firom av^able earnings. 

However, a number of federal credit unions has urged CUNA to rethink its position 
regarding this issue of dividends not being guaranteed. Concerns raised regarding this 
issue are: whether the Federal Credit Union Act really precludes federal credit imions 
from guaranteeing dividends on all types of share accounts; how meaningful to 
consumers is the disclosure that dividends are paid from available earnings; whether the 
truth-in-savings law requires such disclosure; the faa that healthy credit unions have 
made sufficient provision for dividends in the form of both ciurent earnings and 
available capital so that they can in essence "guarantee" future rates up to a reasonable 
point in time; that for accounts such as certificates in which the credit union and 
member contract for a rate, such a practice is tantamount to guaranteeing a rate; and 
that NCUA's Accounting Manual contains confusing language about the difference 
between guaranteeing a rate and contracting for one. Also, we understand that banks 
pay interest from available earnings and caimot always guarantee the rates they 
advertise, yet the Federal Reserve does not require them to include such a statement in 
disclosures and advenisements. 

Thus, CUNA urges NCUA to delete the requirement that federal credit unions include 
in initial disclosures and certain advertisements that dividends are paid from available 
earnings, particularly for certificates. We believe this issue of whether federal credit 
unions may guarantee rates should be further considered by the agency and by credit 
unions. 

We strongly recommend that NCUA establish an advisory committee to look at the issue 
and ramifications of whether federal credit unions may guarantee dividend rates and 
report to the NCUA Board by the end of this year. Given the timetable NCUA staff 
have indicated for promulgation of the truth-in-savings rule, this should give NCUA and 
credit unions sufficient time to address this issue well in advance of the compliance date 
for the new regulation. 



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April 1, 1993 



PwrPOSe of the Troth-in-Savings Act and Rcgnlati on. Section 707.1 (h> 

NCUA has substituted the terms, "members and potential members" for "consumers" with 
the result that most credit unions will be required to provide accoimt disclosures only for 
members and potential members. This is a correa interpretation of the Act for credit 
unions, which CUNA strongly supports. 

Coverage. 707. Hc^ 

NCUA requests comments on whether deposit brokers should be subject to the rules on 
advenising. We are not aware that deposit brokers are placing funds into member's 
consumers accounts. However, if brokers are placing funds into consumer accounts at 
credit unions, such brokers should be covered by the advertising rules. 

NCUA also requests comments on whether companies publishing rate sheets in 
newspapers should be considered a broker. We concur with the Federal Reserve Board's 
interpretation that as long as the financial institution does not pay to have its rates 
included and does not control whether its rates will be published, such rate sheets would 
not fit the definition of advertisement under the statute. 

Another issue regarding coverage NCUA raises is whether an agent for "agented 
accounts" would be subject to the advertising limits. Such an account would be one in 
which a member with a certificate, for example, subdivides the interests in the account 
among several nonmembers. We do not believe that such members should fall within 
the definition of brokers subjea to the advertising limitations. 

The proposal states that perhaps another example of an agented account would be one 
in which a low income credit union accepts deposits from nonmembers assumedly 
through a broker. Brokers placing funds into such accounts should be subject to the 
advertising rules, just as they should if they were placing funds into members' accounts at 
a credit union. 

NCUA seeks comments on whether naniral person accounts at corporate credit unions 
should be subjea to truth-in-savings. We believe they should not, because namral 
person accounts at corporate credit unions present a unique situation. As we have 
pointed out to the agency previously, natural person accounts at corporate credit unions 
are few in number (as dictated by the recenUy revised Section 704). Also, the individuals 
who generally hold consumer accounts at a corporate credit union are the same 
individuals who manage and operate the corporate. They do not need the account 
disclosures because they are the ones who decide the terms and conditions of their 
accounts. Disclosures for them would be superfluous and unnecessary. Corporate credit 



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April 1. 1993 

unions should not be required to undergo the expense and regulatory burden of 
complying with truth-in-savings for a handful of accounts held by individuals who set the 
very terms described in the disclosures. 

Effect on Sta te l^ws. 707.Ud^ 

The Federal Reserve Board adopted a broad preemption of inconsistent state law. 
NCUA has proposed a similar preemption standard, and we urge the agency to include it 
in the final regulation. 

The proposal states that to make a preemption request, the credit imion should write a 
detailed letter to NCUA's Office of General Counsel, citing the inconsistent state law, 
and demonstrating the inconsistency and burden on credit unions. These requirements 
are not indicated for banks under Regulation DD, and they are too stringent for credit 
unions. We believe credit unions should be able to cite the inconsistent state law 
requirements and leave it to the agency's legal staff to determine whether the state 
requirements contradict or are inconsistent with NCUA's rule. 

Derinitions of Terms. 707J 

■Rollback Acc ounts'. 707 2(u) 

CUNA supports the agency's legal interpretation that the Truth-in-Savings Act permits 
rollback accoimts for credit unions. However, there is disagreement within the credit 
union movement as to whether NCUA's final rule should permit credit unions to offer 
these accounts. 

Nonetheless, CUNA urges NCUA to include authority for credit unions to offer rollback 
accounts in the final truth-in-savings regulation, accompanied by full and fair disclosure 
of how these accoimts work. This position stems from CUNA's longstanding tradition of 
support for allowing credit imions, as member owned and controlled cooperatives, to 
decide for themselves how best to serve their members. CUNA is aware that a number 
of credit imions offer both rollback and daily accounts to their members and encourages 
credit uniom to offer daily accounts as a choice to members, to the extent possible. 

CUNA's support for the rollback option is also based on the results of its survey. Based 
on responses from 2,300 credit unions, CUNA estimates that 30 percent of credit unions 
feel CUNA should do all it can to keep rollback accounts. Fifty-five percent suppon 
rollback accounts but feel CUNA should not expend substantial efforts to defend these 
accounts. In addition, NCUA's own survey indicated that over 60 percent of share 
accounts use the rollback method of dividend calculation. 



518 



Page 10 
April 1, 1993 

While CUNA supports the option for rollback accounts as provided in the proposal, we 
are concerned about the proposed disclosure requirements for these accounts. We 
discuss our concerns on page and offer disclosures that are simpler yet fulfill the 
requirements of the statute. 

CUNA supports the agency's definition of "rollback accoxmt" However, at least one 
state league has brought to our attention a form of rollback account which your 
definition may not encompass. This is a rollback account that allows a consimier to 
make withdrawals after a certain date toward the end of the dividend period without loss 
of dividends already earned for the period. The definition should be amended to include 
these accounts. 

•Account" ■ 707J2fa> 

CUNA generally supports the definition of "account" in the proposal. However, as 
discussed below under "member," we do not favor defining nonmembers as "members." 
NCUA could achieve the same result (i.e., spelling out that for those credit unions 
authorized to receive nonmember consimier accounts, such accoimts and deposits as 
covered by truth-in-savings), by including nonmember deposits under "account." 

The proposal provides that accounts held by unincorporated nonbusiness associations of 
natural persons prior to the effective date of the final rule would be exempt unless the 
association notifies the credit union it meets the definition of member. Under 
Regulation DD, the Federal Reserve Board has provided that institutions may assume 
that an existing account will be covered by the rule if the account is identified for tax 
purposes by an individual's taxpayer identification number. We believe such a system 
would be needlessly burdensome for credit unions which would have to identify and track 
these nonbusiness association accounts. We urge that NCUA exempt all existing 
accounts of imincorporated nonbusiness associations of natural persons. 

CUNA supports NCUA's interpretation that certificates of indebtedness are more similar 
to a debt owed by the credit union to the member then they are a share account 
Certificates of indebtedness do not meet the proposed definidon of account and should 
be excluded from the coverage of truth-in-savings. 

Sole proprietorship and custodial accounts should not be subjea to truth-in-savings if 
they are business purpose accounts. Retirement and Uniform Gift to Minors Accoimts 
are consumer accounts, which ought to be covered. An escrow account may be a 
consumer account and covered, or a business account and exempt, depending on the 
purpose of the account. Some credit unions have trust and estate accounts. We beheve 
these generally are business purpose accounts and would request the agency to clarify in 
the final rule these accoimts are not covered. 



519 



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April 1, 1993 



■Advertisements'. 707Jrb) 

Under the proposal, any commercial message in any medium that directly or indirectly 
promotes the availability of an account would be covered by the advertising limitations. 
Many, if not most, credit unions communicate with their members on a regular basis 
through newsletters, which are generally enclosed with the periodic statement. If such 
newsletters are subject to the advertising limits, many credit unions will stop regularly 
including information about their accounts in the newsletters. Credit imion members 
would have less information about their credit union's accoimts then they did before 
truth-in-savings. Such a result was not the intent of the truth-in-savings statute. We urge 
NCUA, given the fact that the wide use of newsletters to communicate with members is 
unique to credit unions, to exempt such publications from the advertising restriaions. 

As a result of the Housing and Community Development Act of 1992, the Federal 
Reserve Board on March 19, 1993 published a final rule that makes a number of changes 
to its Regulation DD. One of the changes exempts a financial institution's sign inside its 
lobby from many of the advertising restrictions. CUNA urges NCUA to incorporate into 
its final rule the £unendments the Federal Reserve Board has adopted to comply with the 
housing act, including the provisions regarding lobby signs. 

•Bonus-. 707.2fn 

CUNA agrees with NCUA that a bonus should be excluded from dividends and interest. 
We also agree that an item, award or premium provided to a third party should not be 
considered a bonus for purposes of truth-in-savings. The Board requests comments on 
whether life savings benefits should be treated as a bonus under the final rule. We 
conclude that such benefits should not be considered as a bonus because these benefits 
are hard to value, they are paid only in limited circumstances, and are generally paid to 
third party beneficiaries. 

•Business Day-. 707Jfy^ 

The Board provides four alternatives for defining "business day." CUNA supports having 
a definition that will provide credit unions with the greatest flexibility as to when 
disclosures must be provided, consistent with the statute. CUNA would support either 
alternative one or alternative four, which are essentially the same definitions and provide 
that a business day is a calendar day, other than Saturday, Simday or legal holidays. We 
believe either definidon would be consistent with Regulation DD and Regulation CC, 
Expedited Fimds Availability. 

However, neither definition addresses credit unions that are only open on Saturdays 
and/or Sundays. CUNA does not think such credit unions should be covered by a 



520 



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April 1, 1993 

"business day" definition. Rather, under Section 707.4(a) delivery of account disclosures, 
NCUA should include language that would allow credit unions open only on Saturday 
and/or Sunday to mail or deliver disclosures within a reasonable time, which would 
generally considered to be 21 calendar days. 

We also believe that credit unions that are not automated or that rely on volunteers to 
perform the credit union's work should not be held to a 10 business day standard. 
Rather, 21 calendar days should be considered a reasonable time for delivery of 
disclosures for those credit unions. Further, a credit union open only on weekends, or 
that is not automated or relies on volunteers should be allowed to have more time in 
those situations for which it can demonstrate additional days are justified, such as illness 
of a volunteer responsible for the accounts. 

'Dividend Period'. 707.2n^ 

Comments are solicited on how this term is defined in the proposal, which states: 
'Dividend period means the span of time-by the end of which shares on deposit earn 
dividend credit" However, dividends are earned from the beginning of the dividend 
period but not credited generally until after the end of the period. The definition should 
be revised to state Uiat tiie dividend period is Uie span of time "during which dividends 
are earned on shares on deposit and following which dividends are credited to shares on 
deposit." 

■Fixed Rate Accounf . 7n7.2rn^ 

To assist compliance with trutii-in-savings, we recommend that NCUA define tiiis term in 
addition to distinguishing it from a variable rate account. The definition could state that 
the term means "an account which by its terms, the credit union agrees to provide SO^lay 
advance notice of rate changes. Such an account is not a variable rate account" 

■Member'. 707.2^^^ 

CUNA strongly supports the agency's proposed definition of member as a namral person 
member of tiie credit union who holds an account primarily for personal, family, or 
household purposes. This definition is based on the correa interpretation ±at for credit 
unions, trutii-in-savings applies only to natural person, consumer purpose accounts. 
However, a nonmember should not be defined as a member. This does not mean Uiat 
credit unions providing deposit accounts for nonmembers should not be obliged to 
comply witii trutii-in-savings requirements for tiiese accounts. Under the definition of 
"account" NCUA should include language that provides such accounts are subject to 
truth-in-savings. 



521 



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April 1. 1993 



■Periodic St atement'. lOlMs) 

The proposal would define "periodic statement" as one setting forth information about an 
account (other than a certificate or passbook account) provided to a member on a 
regular basis four or more times a year. We concur with this definition, which would 
exclude passbook and certificate accounts from the definition of periodic statement 
However, because we do not agree the term "members" should include ""noimiember," the 
agency would have to add language that the periodic statements of credit unions 
authorized to offer nonmember accounts to natural persons would be covered. We also 
recommend that NCUA incorporate into its rule and/or official staff commentary 
(addressed below) the Federal Reserve Board's guidance published in the Federal 
Register March 19, 1993 regarding periodic statements. Our concerns about the 
proposed periodic statement disclosure requirements for rollback and other accounts are 
discussed below. 

"Tiered Rate Accounts". 707,2fv) 

While NCUA recognizes "plateau " accounts in its discussion of tiered rate accounts in 
the supplementary information and in the appendix, it does not appear that the 
definition of tiered rate accounts would include what credit unions refer to as the plateau 
account. Under the plateau account, one dividend rate is earned on balances up to a 
certain level. Once that balance is attained, another rate is applied to the entire 
balance. For example, 5% is provided for amounts up to $1,000 and 5.5% on all funds 
in the account for the period when deposits for the period total $1,000 or more. The 
definition section should more clearly provide for plateau accoimts. Also, we support the 
view that minimum balance accounts are not tiered rate accoimts. 

Variable Rate Acc9nnts". 707.2(z) 

How NCUA defines this term will be one of the most important aspects of the truth-in- 
savings regulation. That's because variable rate accounts are subjea to additional 
accoimt disclosures as well as advertising requirements, and rate decreases for variable 
accounts are not subject to the change in terms notice requirements. CUNA supports a 
broad definition of '"variable rate accounts"' which we believe will be in the best interests 
of credit union members as well as credit unions. Consumers will be fully informed of 
the terms of variable rate accounts in initial disclosures and in advertising. If NCUA 
adopts a narrow definition of variable rate accounts, we believe many credit unions will 
have to seriously consider lowering rates substantially to avoid the cost of providing 
notices and to prevent losses from a wrong guess about the money market thirty days in 
the future. 



522 



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April 1. 1993 

We think the broadest yet most reasonable definition of "variable rate account" is the 
one adopted by the Federal Reserve Board and listed as option two in the proposaL 
This definition provides that any account is variable rate if the interest rate may change 
after the accoimt is opened, unless the instimtion contracts to give at least 30 days 
advance notice of rate decreases. This definition of "variable rate accounts" is preferable 
for credit unions, and we strongly urge NCUA to incorporate this language. 

General Dis closure Reaniremeots. 707J 

CUNA is very concerned about the requirements for oral responses to inquiries. In its 
final rule, the Federal Reserve Board scaled back the requirements it proposed for oral 
responses to inquiries for banks, partly due to its concern about the civil liability a bank 
could face if its teller did not follow the rule in answering questions about accounts. We 
have a similar conceriL We also believe that because the statute does not require credit 
unions or other institutions to provide specific oral responses to inquiries, how a credit 
union responds should be a matter for it to decide. We think NCUA should delete this 
section of the proposal. 

If the agency finds it is necessary to include some provisions regarding oral responses to 
inquiries, it should follow Regulation DD and simply provide that when responding to 
questions about rates, credit unions should state the annual percentage yield and may 
also state the dividend or interest rate. 

Rounding and Accuracy. 707Jfn 

CUNA has concerns about civil liability under these sections. The tolerance permitted 
under Section 707.3(f)(2) is intended to take care of inadvertent errors. Nonetheless, 
unintended mistakes could ocou- that exceed the tolerance, although we anticipate such 
occurrences would be limited. Because many credit unions rely on volunteer help and 
have limited or no data processing capabilities, we believe such credit unions should be 
afforded additional protection for errors they did not intend to make. We urge the 
agency to provide a good faith standard so that inadvertent errors exceeding the 
tolerance will not trigger civil liability. 

Voluntary TIS Programs 

NCUA sought comments on how it could best access existing voluntary truth-in-savings 
programs to boost compliance with its upcoming rule. We appreciate NCUA's 
acknowledgement of this worthwhile endeavor. However, the truth-in-savings law is 
much more than a disclosure law and goes beyond the programs many credit unions 
established under CUNA's voluntary truth-in-savings effort. We believe that because 
many of the requirements of the Truth-In-Savings Act are so specific, all credit imions, 



523 



Page 15 
April 1. 1993 

even those that participated in the voluntary disclosure program, will face tremendous 
changes and substantial burdens in complying with the new regulatory requirements. 

Delivery of Account Disclosures. 707.4(a> 

Like NCUA, we are very concerned about the timing requirements for delivery of 
account disclosures for credit unions that are not automated. We urge NCUA to allow 
as much flexibility as possible for these credit unions, which will be under the greatest 
strain in complying with truth-in-savings. For both new accoimt disclosures and 
disclosures upon request, we recommend NCUA adopt a timing rule that is a variation 
of what it is proposing for the timing of disclosures in response to requests. 

For disclosures in response to requests, the proposal would allow credit unions a 
reasonable time to send them, with 10 business days considered reasonable in most 
cases. In general, we believe this rule should apply for both new account disclosures and 
disclosures upon request. However, credit unions without sufficient staff or data 
processing capabilities should have longer to provide disclosures. For these credit 
unions, we would suggest a reasonable time to mail or deliver the disclosures would be 
within 21 calendar days, and it would be up to the credit imion to reflea in its board 
minutes why it is entitled to take up to 21 calendar days to send disclosures. Fiuther, 
these credit unions should be permitted to take longer than 21 days, if they can 
demonstrate good cause; for example, the volunteer working with new accounts becomes 
ill or has to relinquish her or his duties at the credit union. 

We agree with NCUA's interpretation that credit unions should not be required to 
provide disclosures to any individuals who are not members or are not in the credit 
union's field of membership. The exception to this would be commimity development 
credit unions and some state chartered credit unions that may receive nonmember 
deposits. 

The proposal requires new accoimt disclosures to be provided within 10 business days of 
when an account is opened or service is provided. Most credit imions provide car loans 
for automobiles purchased at a dealer. The paperwork, including credit union 
membership application, is originated at the dealer. In such a case, we think the account 
would not be open until the credit union processes the application and completes its 
work to open the account, but we request clariflcation on this issue. Also, it is not clear 
what it intended by service and whose service is included - the credit union only or that 
of a third party such as a check printer. We would appreciate clarification on this issue 
as well. 



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April 1, 1993 

Disclosures upon Requ est. Generally. 707.4(aH2) 

NCUA seeks comments on whether, for disclosures upon request, credit unions should 
be allowed to state the dividend rate for the account in question as of the last dividend 
declaration period, as opposed to the rate and yield available within the last seven days. 
CUNA supports allowing credit unions to choose which disdosiue best suits their 
members. NCUA also asks whether credit unions should be permitted to describe a 
certificate account's maturity as a term, rather than maturing on a specific date. CUNA 
also supports credit unions having a choice for this disclosure. 

Content of Initial Disclosures and Disclosures Upon Request for 
Rollback Accounts. 707.4(b> 

As stated above, CUNA is concerned that the disclosure requirements for rollback 
account are needlessly burdensome. CUNA supports disclosures that fully describe the 
terms and conditions of these accounts but finds the proposed requirements for the 
initial disclosures and disclosures upon request regarding rollback accounts to be 
redundant and confusing. We believe disclosures for rollback account will be more 
meaningful to consumers if they are not repetitious and are more precise. We suggest 
new account disclosures and disclosures upon request for rollback accounts require the 
something similar to the following language. This disclosure would be in addition to the 
other applicable requirements for rates, yields and other terms. 

The stated annual percentage yield (APY) assumes that the funds in your account are 
deposited by [the rollback date] and remain in the account through the end of the 
[month/dividend period/other portion of the dividend period for which the credit union 
provides provisional dividend credit]. The actual APY may be less depending on 
account activity. Funds withdrawn before the end of the [month/dividend period/or 
other portion of the dividend period for which the credit union provides provisional 
dividend credit] will not earn dividends. If we receive a deposit to your account on or 
before the rollback date, the deposit will earn dividends as of the 1st day of the month. 
If we receive a deposit after the rollback date, dividends will be earned as of the 1st day 
of the following month. For example, if the rollback date is the lOth of the month, a 
deposit made on June 7 would earn dividends from June 1; a deposit made on June II 
would earn dividends from July 1. Funds withdrawn on June 28, for example, would not 
earn any dividends for the period. 



525 



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April 1, 1993 

We think this type of clear disclosure should allay some of the concerns of consumer 
groups about rollback accounts. 

Potential Lo ss of Principal. 707.4(b) 

NCUA should follow the lead of the Federal Reserve Board and delete the section 
regarding foreign currency denominated accounts. We do not believe very many, if any, 
credit unions have such accounts. 

Notice to Existing Acco untholders. 707.4(c) 

CUNA supports the maimer in which the agency has addressed notices to existing 
accoimtholders. We agree that the notice should not be required before the effective 
date of the regulation and that allowing credit unions to include a statement on the 
notice that the accountbolder may wish to request account disclosures is appropriate. As 
an alternative to the notice, credit unions would be permitted to provide account 
disclosures. 

Change in Terms Notices. 707.5(a) 

The proposal would require credit unions, for existing accounts as well as those opened 
after the effective date of the rule, to provide 30-day advance notices when any of the 
terms that must be disclosed are adversely changed. Excluded from this requirement are 
variable rate accounts; certificate accounts with mamrities of one month or less; and 
share draft and check printing fees assessed by third parties. CUNA wholeheartedly 
supports these exemptions, particularly the one for variable rate accounts. However, the 
Federal Reserve Board has revised Regulation DD to provide that all check printing 
fees, whether assessed by third parties or by the institution, would be exempt from 
change in terms notices. We agree with this interpretation and request NCUA to change 
the proposal to conform to Regulation DD regarding this provision. 

The proposal and accompanying supplementary language are silent as to how the notice 
must be provided. We believe it is not necessary for the notice to be a separate mailing 
but could be included on or with a periodic statement or in the credit imion's newsletter, 
and request this be included in the final rule or accompanying supplementary 
information. 

Notices Prior to Maturit y. Generally. 707.5(b) 

We believe reasonable people could differ as to whether under the statute renewal of 
certificate accoimts are the equivalent of new accounts, requiring a whole new set of 
accoimts disclosiu-es. Because of this interpretation of the truth-in-savings law, the 



526 



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April 1, 1993 

Federal Reserve Board had to create exceptions to help alleviate the burden on banks of 
providing all the new account disclosures every time a certificate matures. 

The exceptions the Federal Reserve Board developed under Regulation DD are 
unnecessarily complicated and just trying to sort through the various timing rules for 
providing disclosures for certificates of differing maturities is burdensome. Also, credit 
unions would be subjert to civil liability if they mistakenly used the wrong schedule for 
providing notices. 

NCUA should rethink this portion of the proposal (Sections 707.5(b),(c)(d)) and develop 
a simpler approach that would nonetheless provide the information to members which 
the aa requires. We believe that NCUA has the authority to modify Regulation DD 
regarding notices prior to maturity, to facihtate compliance with truth-in-savings. 

CUNA is not suggesting that members with time deposits at credit unions should not be 
given any notice prior to maturity. We believe notice of the upcoming maturity dates 
and a notice of what terms have changed upon renewal should be provided for most time 
deposits. Credit unions should also include a statement that members may contact the 
credit union for a full set of accoimt disclosures and include the credit union's telephone 
number. For automatically renewed (rollover) cenificates of longer than one month, 
notice should be provided 20 days in advance. No prior notice should be required for 
certificates of one month or less, because members know that by the terms of the 
account it renews frequently, or for certificates of longer than one year that do not renew 
automatically. Both types of certificates should be subject to notices within a reasonable 
time after renewal, such as ten business days. 

Again, we beheve NCUA has the authority to deviate from the truth-in-savings law and 
from the Federal Reserve Board's regulation to relieve the burden on credit unions and 
to facilitate compliance. We may not have the best solution to providing notices prior to 
maturity. This is one of the many issues for which NCUA might find it useful to have a 
task force to discuss different approaches. At the very least, we urge NCUA to simply 
this section of the proposal with an eye toward easing the burden on credit unions who 
must comply with these provisions. 

Periodic Statements. Generally. 707.6 

Another major concern we have with the proposal is whether the APYE periodic 
statement disclosures should reflect the amount of dividends earned or the amount of 
dividends paid for the period. As you know, the language of the proposal states that 
credit unions should disclose the amount of dividends earned, while the supplementary 
language on page 56701 of the Federal Register states that credit unions must disclose 
the amount of dividends "that have been paid during the statement period." We believe 



527 



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April I. 1993 

that NCUA has the authority to allow credit unions to use either method for purposes of 
periodic statement disclosures. CUNA strongly supports changing the proposal to permit 
credit unions to provide APYE calculations on periodic statements that reflect the 
amount of dividends paid and credited, or the amount of dividends earned. 

If NCUA allows credit unions to choose to use an APYE based on dividends paid and 
credited, this practice would differ from how banks must calculate interest for purposes 
of the APYE disclosures on their periodic statements. However, we believe NCUA has 
the authority to deviate from Regulation DD on this issue in order to facilitate 
compliance and to accommodate credit union accounts, such as rollback accounts. 

The Federal Reserve has adopted a change to Regulation DD that would allow 
institutions to include on the periodic statement for one account, the account number, 
type of account and balance information for another account, without triggering the duty 
to provide complete periodic statement disclosures for the other account. We encourage 
NCUA to allow credit unions to have the same flexibility in providing periodic statement 
information to their members. 

CUNA supports NCUA allowing credit unions to include either the total number of days 
in the period or the begiiming and ending dates for the period on periodic statements. 
This will permit credit unions to choose which way to present the length of the period 
that credit unions believe is the most meaningful for their members. 

The proposal provides a special rule for disclosures on periodic statements if the average 
daily balance method is used and dividends are calculated on a period other than the 
statement period. Under Section 707.6(b) of the proposal, a credit union that sends a 
statement each month and calculates dividends based on the average daily balance for 
the quarter would disclose dividends earned and the APYE based on the quarterly 
dividend period and not the monthly statement period. This means, however, that for 
the first two months of the quarter, the APYE and dividends earned cannot be provided 
because they are unknown. In this situation, the credit union would include the APYE 
and the dividends earned on the third monthly statement of each quaner. CUNA 
supports this special rule which accoimnodates credit union practices in a maimer that is 
consistent with the Truth-In-Savings Act. We believe it should be applied to rollback 
accounts for which dividends are calculated for the dividend period rather than the 
statement period. However, this special rule may not be necessary if the agency clarifies 
that APYE disclosures may be based on dividends paid and credited. 



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Periodic Statement Req uirements for Rollback Accounts. 707.6ra^ 

Another key concern involves the periodic statement disclosure requirements for rollback 
accounts. 

The proposal would require credit unions that provide period statements to include on 
those statements the annual percentage yield earned (APYE) for the dividend period. 
While the truth-in-savings law does not define the APYE, the proposal describes this 
term as an annualized rate that reflects the relationship between the amount of 
dividends paid to the account during the period and the average daily balance in the 
accoimt for the period. Thus, credit unions providing periodic statements will be 
required to use daily calculations in order to determine the APYE. 

As stated above, CUNA supports full and fair disclosures of all accounts at credit imions, 
including rollback accounts. However, CUNA feels it is essential that NCUA take into 
account the impact of the APYE disclosure requirement on credit unions offering 
rollback accounts that do not have data processing capabilities. These credit unions 
would not be able to make the daily calculations without undue burden, and we urge the 
agency to exempt these credit unions from the APYE requirements. (Credit unions 
without data processing capabilities would not be exempted from any of the other 
disclosure requirements of truth-in-savings.) 

Such credit unions should be given up to three months prior to the date when 
compliance is required to notify their NCUA regional office that they do not have 
sufficient data processing capabilities and receive an exemption from the regional 
direaor. Annual recertification would be required. We estimate that fewer than 2,000 
of the nation's 13,400 credit unions currently are not computerized. Because these credit 
unions are among the country's smallest, they serve fewer than 1% of all credit union 
members. 

NCUA has the authority to provide such an exemption under Section 272(b) of the Act 
which authorizes NCUA to write a rule for credit unions substantially similar to that of 
the Federal Reserve Board "taking into account the unique nature of credit unions and 
the limitations under which they may pay dividends on member accounts." Credit unions 
without data processing capabilities are likely to be operated primarily by volunteers, a 
situation unique to credit unions. 

NCUA's authority to exempt such credit unions from the APYE disclosure 
is also supported by Section 265 of the Act which states that disclosure requirements 
relating to the APY may be modified as necessary to carry out the purposes of the Act 
for particular accounts. 



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April 1. 1993 



Payment of Dividends. 707.7 

Like the Federal Reserve Board, NCUA would allow credit unions to use either the 
daily balance or average daily balance method to calculate dividends (unless the rollback 
method is used under NCXJA's proposal). We support this flexibility which we agree is 
permissible under the statute. Further, we do not believe consumers care one whit 
which method is used, as neither consistently provides a greater retunL 

Determinat ion of Minim um Balance. 707.7(a>(2^ 

The proposal provides that a credit union must use the same method to determine 
minimum balance required to earn dividends as it does to determine the balance on 
which dividends are calculated. This appears reasonable. However, the proposal would 
allow credit unions to use another method to determine minimum balance to earn 
dividends if that other method "is unequivocally beneficial to the member." What steps, 
if any, need a credit union take to show another method is "unequivocally beneficial" to 
the member? For example, should the policies of the credit union that selects an 
alternative method reflect how the member is benefited? 

Payment on Increment s of Par Value of Shares. 707.7(b> 

CUNA strongly supports allowing federal credit unions to continue paying dividends 
based on par value increments, where the par value is $5 or less. 
As your 1987 survey indicates, paying dividends on par value increments has a 
longstanding practice among all types of credit unions. We therefore support such 
authority for state chanered credit unions, as long as this practice is not expressly 
prohibited by state law. 

Date Divide nds Begin to Accme. 707.7(d> 

Under the supplementary information to Seaion 707.7(d), NCUA asks for comments on 
how to handle credit unions that offer low balance accounts that are not rollback 
accoimts. We believe that if NCXJA provides sufficient time between the publication of 
its final rule and the compliance date for the rule ~ which we beUeve should be at least 
IS months - these credit unions should be able to switch to rollback accounts. 

Advertise ments. Generally. 707.7 

We conou" with the Board's interpretation that credit unions should be permitted to 
include the dividend rate in advertisements that state the APY. We also agree that it 
would be confusing to allow credit unions refer to the dividend rate as "annual 
percentage rate." 



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April 1, 1993 

While the proposal's provisions regarding tiered rate accounts are based on a reasonable 
interpretation of the truth-in-savings law, we are very concerned about the advertising 
requirements for tiered rate accounts. These accounts provide incentives for members to 
save because their rate of return increases as the funds in the account accumulate. 
However, we believe credit imions will be reluctant to advertise these accounts because 
of the onerous advertising requirements, namely that each APY and corresponding 
minimum balance range must be stated. 

For variable rate accounts, credit unions would be required to include in advertisements 
that the rate may change after the account is opened. The truth-in-savings law does not 
require such a statement and we believe it should be dropped. Many credit union 
accounts are variable and it is not necessary to state what the member already knows. 

The discussion imder Section 707.8(c)(2) illustrates why some credit imions feel that the 
agency should address the issue of whether dividends may be guaranteed. Credit imions, 
like other corporations, advertise to attract business, not to scare it away. If credit 
unions are required to state that rates are "anticipated" or to use only past rates, their 
advertising will not be effective. This may even result in credit union members going to 
a bank which can advertise current rates without raising concerns about whether interest 
will actually be paid. Having to disclose that dividends are paid from current income 
and available earnings will likely have the same effect on some credit union members. 

Advertisements for RoHback Accounts. TOT-Sfd^ 

The requirements for advertisements for rollback accounts are more in the nature of 
disclosures than they are ads. We believe that it is in the best interests of credit unions 
and their members that credit unions advertise rollback accounts, and all other accounts, 
fairly. However, this does not mean that every detail of the account has to be described 
in the advertisement, which would be the result under alternative two in Section 
707.8(d). Alternative one could be worse because it would not even allow the credit 
union to state the APY for the rollback account. 

We believe the advertising requirements for rollback accounts may be simpUfied without 
obscuring how these accounts work. We beUeve that credit unions should be allowed to 
state the APY and generally be required to include some statements such as: funds 
deposited by the rollback date earn from the first, and the APY will be reduced if 
withdrawals occur before the end of the period. 

Adrcrtisementa for Bo nuaea. 707,8^6^ 

One way NdJA could reduce the regulatory burden of truth-in-savings would be to 
eliminate all the requirements in the proposal that are not expressly required by the 



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April 1, 1993 

statute. An example of requirements imposed by the proposal not foimd in the statute 
are those regarding bonuses. If a credit union advertises a bonus worth more than SIO 
per year, additional information such as the conditions under which the bonus would be 
paid, when the bonus would be paid, and other disclosures such as the APY would have 
to be stated. We think this is not necessary and will result in credit unions refraining 
from offering bonuses, to the consumer's detriment. 

Exemption for rertain Adverrisements. 707.gfn 

As stated above, we urge NCUA to adopt the changes in requirements for certain 
advertisements recently adopted by the Federal Reserve Board, as appropriate for credit 
unions. The changes appeared in the Federal Register on March 19, 1993. 

We also urge NCUA to exempt telephone response machines from the advertising 
requirements. These are informational devises, rather than advertising. In order to get 
the information, the member has to seek it out by calling the credit union. This is 
different from commercial messages which the consumer receives without a choice. We 
beUeve telephone response machines should not be considered advertising and thus, 
should be completely excluded from advertising requirements. 

Further, we also encourage NCUA to exclude messages on periodic statements from 
advertising requirements. Credit unions sometimes include messages on periodic 
statement about other types of accoimts or products they offer. If such messages are 
subjert to the advertising requirements, credit unions will likely stop including the 
messages on statements. We believe credit union members will be better served if 
statements on periodic statements may be added without being subject to the advertising 
limitations. 

EnforoemenL 707.9 

The proposal does a very good job of detailing the civil money penalties a credit imion 
could be subject to for violations of truth-in-savings, and we appreciate NCUA including 
this section in the supplementary information. 

The proposal is silent on how the agency plan to enforce the rule. We beUeve the final 
rule should address the issue, particularly for privately insured and noninsured credit 
unions. 

Record Retention. 707.9 

The supplementary information to Section 707.9(c) states that for recordkeeping 
purposes, credit unions should retain enough information to reconstruct required 



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i^ril 1, 1993 

disclosures or other records. It would be extremely helpful to credit unions if the 
agency would include in the supplementary information or ofGcial staff commentary what 
the examiner expects to look for when he or she reviews a credit union for compliance 
with truth-in-savings. 

Share. Sha re Pratt and Share Certi flcate Accounts. 701JS (Preemption^ 

The agency seeks comments on the interrelation between the preemption for federal 
credit unions under Section 701 J35 of the agency's rules and the preemption under truth- 
in-savings. We believe that the preemption under the proposal and the one in Section 
70135 are compatible and that the preemption under the proposal should not replace 
the broader preemption in Section 70135. 

Regulatory nexibilitv Act 

The Regulatory Flexibility Act requires the agency to consider the regulatory burden 
imposed by new regulations, panicularly for small credit unions. As part of its analysis 
under this act, the agency states that "the data suggest that smaller credit unions will 
have a minimal burden if their statements are issued less thsin frequently than on a 
quarterly basis." We disagree. 

Whether small credit unions provide periodic statements or not, truth-in-savings will be 
an enormous burden on them and as we lamented above, they are subject to the same 
liability provisions that apply to Citibank. Even if less frequent statements mean fewer 
regulatory requirements, it is not clear that credit unions n