Box 7, Folder 10, Document 23

Box 7, Folder 10, Document 23

THE URBAN COALITION ACTION COUNCIL

JOHN W. GARDNER
CHAIRMAN

1819 H STREET, N. W.
WASHINGTON, D.C, 20006

Community Self-Determination Act of 1968

Senate Democratic Version
S. 3875

Senate Republican Version
S. 3876

House Democratic Version
H. R. 18976

House Republican Version
H. R. 18460

Title I (All Title references are to S. 3875)

Title I creates a National Community Corporation
Certification Board (NCCCB) and outlines the procedure and
purpose of individual Community Development Corporations
(CDC's). The NCCCB acts much like the National Labor Relations
Board in its union certification procedure. It will be com-
posed of five members, and its primary functions will be the
issuance of corporation charters, conducting and supervising
referenda, service as counsel to the CDC's and as an information
center for parties interested in forming CDC's. A National
Advisory Commission advises the NCCCB but does not have direct
impact on the latter's specific activities.

Section B of Title I states the structural outline of a
local CDC. This is the heart of the Act. It would have a broad
social improvement purpose as well as the promotion of business
activity. CDC's operate in areas in which the 16-year and up
population ranges from 5,000 to 300,000. The geographic area
within which a CDC would operate is designated by the applicants
for a CDC charter. Any resident within the designated area
may be a shareholder of the corporation, but the Act requires
that a minimum of 10 per cent of the 16-year-old and up popula-
tion residing within the area hold stock in the CDC. The shares
would have a par value of $5, and each shareholder would have
one vote in corporate matters, notwithstanding the number of
shares the shareholder actually holds.

The functions of a CDC fall into six categories. First,

neighborhood services and community improvement, including but
not limited to public welfare programs, day care centers,

TELEPHONE: 202 293-1530
hes

consumer education, job placement, legal aid, etc. Second, it
would own stock in businesses in the CDC area. Third, it would
sponsor, own, or manage housing facilities within the CDC area.
Fourth, it would be an advocate planner for neighborhood and
community renewal projects. Fifth, it would serve as a
representative of various community interests in other areas

of public policy and concern. Sixth, it would encourage
various other elements of the community such as business,
labor, religion, and so forth, to become active in voluntary
community self-help efforts.

A CDC would be financed by earnings from affiliated
businesses, grants from community development funds, foundations,
trusts, etc., and from contracts with privately owned businesses,
government agencies, and other entities for specified services or
products.

The CDC would have nine directors and two additional
directors for each 10,000 shareholders of the corporation in
excess of 25,000. The directors of the corporation would
select the executive officers as well as the Business Management
Board. The latter's primary function is to provide overall
management expertise and assistance to those affiliated busi-
nesses owned by the CDC. The full area of responsibility of
the members of the BMB would be spelled out in the CDC charter
but would be phrased primarily to afford the BMB maximum lati-
tude to manage CDC owned businesses and allow for the purchase
of other enterprises.

CDC's can be organized by any five or more residents of
a specific area covering a population range from 5,000 to
300,000, 16 years and older. For any designated area to be
eligible for a CDC, however, the rate of unemployment must be
higher than the national average or the median family income be
proportionately lower than the national average. After applica-
tion is made for a CDC charter, a 60-day period must elapse so
as to allow any other interested group within the same area, or
an overlapping area, the opportunity to organize its own CDC.
Before the NCCCB will grant a final charter to a group of
applicants, the applicants must have received pledge cards for
the purchase of stock from a minimum of 5 per cent of those
eligible to purchase stock within the designated area of
operation. This insures a minimum level of community support.
If the applicants cannot obtain pledge cards from the minimum
5 per cent, the charter application is rejected. Once the
pledge cards are received from 5 per cent of the population,
a conditional charter is issued. At that point, the CDC has
45 days in which to obtain additional pledge cards covering
10 per cent of the area's population. Five hundred people
must have paid in at least $5,000 for CDC stock. During the
=3=

45-day period the pledge money is kept in escrow pending
further action toward issuance of a final charter.

During the period in which a CDC attempts to raise the
minimum level of funds, an additional determination is being
made which indicates the relative economic need of the area
in question. A Development Index is figured for the area.

The Index is the lesser of two ratios: First, the ratio of the
national rate of unemployment to the area's unemployment rate

x 100, or second, the ratio of the nation's median family

income to the area's median family income x 100. If the
Development Index of a conditional chartered CDC is found to be
90 or above, the charter is dissolved because the CDC is con-
sidered too close to the national average of 100. A special bonus
is afforded those rural areas from which outmigration is con-
tributing directly to specific urban tensions. If only one
conditional CDC is left within a given area, a vote is then

held in which a majority of those voting must approve the appli-
cants. If a majority of those voting do approve, the final
charter is granted; if a majority disapprove, the charter is
dissolved.



In the case of competing CDC's within a given area,
referenda are held for each competitor, starting with those
representing the geographic area encompassing the highest
level of population. If none of the competitors within the
largest given area are accepted, a vote is held for those
CDC's competing in the next smallest geographic area, etc.,
until such time as one CDC is approved by the requisite majority
of those voting. At least 10 per cent of the eligible voters
must actually cast a ballot for any referendum to be valid.

Once a CDC is established, a one-time seed money grant is
made to the corporation in an amount equal to its current
paid-in capital.

Title II

Title II provides for the establishment of Community
Development Banks (CDB's), which are organized by CDC's. CDB's
operate in an area of 25,000 or more people, 16 years and up,
and concentrate on financial services to the area in question.
They provide both business financing and consumer credit to
individual CDC shareholders.

Equity capital is obtained through the sale of stock to
1) the Secretary of the Treasury (Class A),

2) any groups or individuals other than the
Federal Government and CDC's (Class B), and

3) stock sold only to CDC's (Class C).
=4=

Class A stock would be nonvoting and repaid by a franchise

tax on the CDB's net earnings. Class B stock would be non-
voting but receive dividends. Class C stock would not receive
dividends. The latter point is made so that the CDB becomes a
necessary financial mechanism for the establishment and pro-
liferation of CDC activities but does not become a source of
income.

Income bonds would be issued to the public to provide
additional equity and debt capitalization.

CDB net earnings would be first applied to make up any
bad debts and restore any impaired capital. The payment of
stock dividends is a lessor priority.

Loans are made to the following individuals and busi-
nesses:

1) cbDC shareholders for normal consumer
credit;

2) a small business, 75 per cent of which is
owned by resident CDC shareholders;

3) a small business, less than 75 per cent
of which is owned by CDC shareholders,
so long as the CDC in whose area the
business is located is given the right
of first refusal when the business is
sold;

4) a subsidiary of a CDC, 51 per cent of
which is owned by CDC shareholders;

5) outside corporations with turnkey contracts
with a CDC;

6) cooperatives, 75 per cent of whose members
are CDC shareholders; and

7) nonprofit housing sponsors operating within
the community serviced by the CDB.

An applicant for a business loan must have a minimum level
of business experience and expertise, or have contracted with
a company or service to obtain the necessary business training.
Loans of up to 90 per cent of the required capital may be made
on terms of up to 20 years for repayment. Housing sponsors can
receive money for "front-money" or construction loans,
Unorthodox and high risk ventures are encouraged as long as they
would yield significant community benefits. Participation loans
are encouraged.
The primary purpose of a CDB is to channel capital to
business ventures. Its secondary purpose is to provide normal
banking services to people in impoverished areas.

Title III

Title III creates a United States Community Development
Bank, which would serve as a secondary financial institution
and as a source of technical, financial, and managerial expertise
to CDB's. It would serve also to promote economic development
in those poverty-stricken areas where no CDB's exist. The USCDB
would have the same relationship to CDB's as a federal inter-
mediate credit bank has to local commercial banks. The
USCDB would have the same relationship to those areas not
serviced by CDB's as the World Bank has to underdeveloped
countries. Although not an instrumentaility of the Federal
Government, the President would initially appoint the incorporators
and first directors of the USCDB. Eventually CDB's holding stock
in the USCDB would name some of the directors.

Capitalization would be provided through stock sales.
The Secretary of the Treasury would hold nonvoting, non-
paying, Class A stock purchased through funds provided by a
Congressional appropriation. Class B stock would be held by
anyone other than the Federal Government, CDB's being eligible
to purchase such stock. The USCDB is authorized to issue bonds,
debentures, and other certificates of debt up to 5 times its
paid-in capital and surplus. Its primary functions are to
provide secondary banking services to CDB's through discounts,
loans, notes, advances, and so forth, and to make loans for
business and community facilities or public development
facilities in low-income "investment areas," designated by the
Secretary of Labor. It provides interim construction financing
for facilities which it may also plan, initiate, own, and
manage until such time as the facilities are purchased. It
provides management assistance to CDB's as well as other
borrowers and generally creates new investment opportunities by
bringing together facilities, capital, and management.

A CDB may establish branches.
USCDB earnings are to be applied in the following order:
1) restoration of any capital impairment,

2) creation and maintenance of a surplus
account,

3) payment of a franchise tax with reference
to the amount of Class A stock held by the
Secretary of the Treasury,

4) establishment of contingency reserves,
-6-

5) dividends on Class B stock up to
6 per cent of earnings, and

6) retirement of Class A stock held by the
Treasury.

Title IV

Title IV authorizes certain Federal tax advantages for
CDC and turnkey corporations. All tax advantages granted to
CDC's are applicable until the Development Index for the
designated CDC area reaches the national average for five
years. Title IV would amend the Internal Revenue Code to
permit each corporation in a group of CDC subsidiary corpora-
tions to retain its individual surtax exemption and pay its
regular corporate tax on anything over the $25,000 at a 22 per
cent rate rather than 28 per cent. Tax rates and surtax
exemptions are liberalized depending upon the area's Development
Index, with provisions for greater tax advantages to those
CDC's operating in areas with the lowest Development Index.

In addition, the Internal Revenue Code is amended to
attract turnkey companies into the CDC area. Turnkey companies
can take advantage of rapid amortization schedules for its
facilities. Again, the rate of amortization depends on the
rate of the Development Index with the shorter periods of
amortization being made available to those companies which
invest in the poorest areas. A 10 per cent tax credit on wages
and salaries of CDC shareholders employed in the turnkey
facility is granted to the turnkey company. This is called a
human investment tax credit. The 10 per cent figure compares
with the 7 per cent investment credit on machinery investment,
though is higher because of the impermanence of the investment
in human skills. It is argued that the credit must be higher
to induce the turnkey corporation to involve itself in impoverished
areas.

The turnkey company is not required to pay capital gains tax
on the sale of a turnkey facility if the sale profits are
reinvested in another turnkey operation or in Class B stock of
a CDB. A turnkey corporation would be entitled to a sustained
profitability tax credit equal to 15 per cent of the profits
generated from turnkey operations for five years after the sale
of a facility to a cDC. This latter provision presumably
guarantees the development of the strongest financial operation
the turnkey company can encourage.

faitle V

If a CDC is not a dividend-paying corporation, it can be
treated as a CAP agency under the Economic Opportunity Act.

The Small Business Administration is authorized to make
grants to CDC's of up to 90 per cent of the cost of technical
and management assistance and training programs. The grants
may be made for a number of programs, some of which are as
follows:
1)

3)

4)
5)

6)

7)

aT

the identification and development
of new business opportunities, joint
ventures, and turnkey agreements;

Marketing surveys;

planning and research for business
development;

plant design, layout, and operation;
marketing and promotional assistance;

business counseling, management training,
and legal and other related services with
specific emphasis on management training,
using the resources of private business;

encouragement of subcontracting to CDC's
for establishing business and cooperative
efforts to train and upgrade CDC personnel.
APPENDIX

S. 3875 Sponsors:

Senators Nelson (Wis.), Bayh (Ind.), Harris (Okla.), Hartke (Ind.),
Church (Idaho), Mondale (Minn.), Hart (Mich.), Magnuson (Wash.),
Metcalf (Mont.), Moss (Utah), Pell (R. I.), Randolph (W. Va.),
Ribicoff (Conn.), Williams (N.J.), Young (Ohio), Muskie (Me.),
Tydings (Md.) and McGovern (S. D.).

S. 3876 Sponsors:

Senetors Percy (Ill.), Baker (Tenn.), Boggs (Del.), Brooke (Mass.),
Case (N.J.), Fong (Hawaii), Griffin (Mich.), Javits (N.Y.),
Jordan (Idaho), Kuchel (Calif.), Pearson (Kans.), Prouty (Vt.),
Scott (Pa.) and Tower (Tex.)

H. R. 18976 Sponsor:

Rep. Fraser (Minn.)
H. R. 18460 Sponsors:

Reps. Goodell (N.Y.), Curtis (Mo.), Widnall (N.J.) and Taft (Ohio)

Although there are at least three versions of the
Community Self-Determination Act, the differences are in
form only. Whatever structural differences are found in
the bills are primarily because of political reasons. In
short, familiarity with the concepts and proposals of any
one bill will be equivalent to an examination of all of the
bills.