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Mr. DWYER. Of course, as you know, Mr. Roe, the vast majority of our efforts are guaranteeing the bank that loans.

Mr. ROE. Right.

Mr. DWYER. That is where we intend to draw on the expertise of the banking profession in advising us that we should make a particular commitment in a given case.

We would hope that they have investigated that, too.

We think, and I do as an individual, that such a study has really not been given to the extent that it should be. We are thinking, as we should, much more of the credit factors; the potential possibility of a business surviving on a more accepted basis without necessarily restricting ourselves to this particular question of crime.

To an extent, I believe we recognize this as being somewhat of a new factor. Most important, a big one, but necessarily entering the picture in a way that really has never been before. So I think much study can and should be given to it.

Of course, the Administrator, in past appearances on the Hill, before the House, has presented facts and figures to you. I brought some along with me, but I think they are contained in other testimony before this committee and others as to the study and knowledge we have gained on the total problem.

Mr. ROE. The committee was somewhat struck by Mr. Metcalfe's testimony, as his story unfolded, about street gangs. This is an alarming situation. It is something the subcommittee is interested in. There are street gangs running an extortion racket on a small businessman, who, in turn, is having his own business and finacial problems without crime. I feel we have a very contradictory situation where the small businessman is going to the SBA, going to the bank and getting a bank loan guaranteed by the SBA, and with this money paying the extortionists. It seems that Federal guaranteed dollars are going to furthering the crime situation.

It is hoped that SBA will be able to investigate this further. At the present time, SBA is on the horns of a dilemma-a sort of catch 22 situation, where if SBA does lend money to the small businessman then you may be aiding the criminals. If he doesn't get the money, he may still fall prey to crime-for instance, if he can't afford security devices on his store.

Mr. DWYER. It is an area, Mr. Roe, that we feel should be adequately studied more than it has been up to now.

Mr. ROE. Do you feel that certain SBA personnel should be assigned solely to the problems of crime?

Mr. DWYER. As you know, in our agency we have a committee studying it. These are experts in the areas of crime; the influence of crime, organized crime and unorganized crime. Obviously, this would be within an agency's perusal.

Mr. ROE. Has the administrator taken a position as to whether he feels SBA or, for instance, the Department of Housing and Urban Development, would be in a better position to administer a crime insurance program if Congress does enact legislation for the direct writing of insurance?

Mr. DWYER. I have no idea.

Mr. Chairman, may I make one observation to this distinguished committee?

Mr. KLUCZYNSKI. You may.

Mr. DWYER. All of you for that matter have been very complimentary to this office, and I appreciate it. All of you have spoken of the effort of the minority program here, and I would like to point out to you some facts just briefly here, contained on pages 5 and 6.

In 1968, out of a total of 145 loans, 45 were made to members of minority groups for a dollar commitment of $1,100,000. In 1970, out of 463 loans, 267 were made to minority entrepreneurs.

I think you can see the progress in just those few figures. These are fiscal year figures, as you know.

Mr. KLUCZYNSKI. My last report from the Administrator shows SBA has done a very fine job and very few of those loans are delinquent. I am very happy, as a member of this committee, to know

that.

Mr. DWYER. Mr. Chairman, I am sure the Administrator would be very happy to know of your very kind remarks that you made earlier concerning him.

Mr. ROE. Mr. Chairman, we have a letter to be included in the record. This is a letter from the Administrator on SBA's activities concerning crime.

Mr. KLUCZYNSKI. There being no objections, it will be made a part of the record and it is so ordered.

(The letter follows:)

SMALL BUSINESS ADMINISTRATION,

OFFICE OF THE ADMINISTATOR, Washington, D.C., August 14, 1970.

Hon. JOHN C. KLUCZYNSKI,
House of Representatives,
Washington, D.C.

DEAR MR. KLUCZYNSKI: This is in reply to your inquiry about what this Agency has done in the area of crime prevention.

In conformance with the Small Business Protection Act of 1967, the Small Business Administration conducted a study of the impact of crime on small business concerns and in 1969 published a report, Crime Against Small Business. A copy is enclosed. This report has been used widely by security organizations, police departments, state and local governments, and business associations throughout the United States in the development of crime prevention measures. The Agency has also published four Small Marketers Aids on crime prevention, copies of which are enclosed. These are free publications sent to a mailing list of 35,000, and are also available upon request. The following list shows distribution of these publications:

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Through its program of management assistance, SBA cosponsors courses, conferences, and problem clinics for small business owner-managers. During fiscal year 1970, 306 of these sessions, attended by over 17,000 small businessmen, were on the subject of crime prevention.

The Agency also has seven movies on crime prevention used as integral parts of its training sessions and also at meetings of Chambers of Commerce and local business groups. The following tabulation shows usage of the films:

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Thank you for your interest in this Agency's activities in crime prevention. Please let us know if we can be of further help.

Sincerely,

HILARY SANDOVAL, JR., Administrator.

Mr. KLUCZYNSKI. We had a witness that was scheduled to be here this morning, Miss Louise Ryan, editor of the South Town Economist, one of my favorite community newspapers. She was unable to make it. I see the publisher of this fine newspaper, Bruce Sagan. Bruce, you were scheduled to testify this afternoon. Are you all set to testify this morning?

Mr. SAGAN. Yes, sir.

Mr. KLUCZYNSKI. Mr. Bruce Sagan, publisher of the South Town Economist newspaper.

TESTIMONY OF BRUCE SAGAN, PUBLISHER OF SOUTH TOWN ECONOMIST NEWSPAPER, CHICAGO, ILL.

Mr. SAGAN. I am here this morning, Mr. Chairman, as an individual, not as a newspaperman, to talk very briefly since you have heard a good bit of testimony and many of the things I wanted to say have been covered already.

I want to talk about some of the experiences that we have had in the inner city with problems of insurance. I happen to be the vice chairman of the Harper Court Foundation, which is a nonprofit development corporation under Illinois law. Which made a 25-year construction loan from the Small Business Administration to build a small shopping center for the development of small business enterprises.

This center was built in 1965, and has proceeded rather successfully in its original intent, with the help of the SBA in developing a number of very successful small businesses. The center itself is located in the Hyde Park section near the intersection of 53d and Harper Avenue, in the city of Chicago.

Mr. KLUCZYNSKI. You might recall that this committee investigated this in your early days.

Mr. SAGAN. That is right, I do indeed remember it very well. Mr. KLUCZYNSKI. We were very impressed with the development. Mr. SAGAN. I can only say to you that things have proceeded since that time remarkably well. We have had some failures, which we told you at that time was the intention of the project, but those failures have been replaced again by small enterprises who wanted to start

out, and they have been successful. We now have about 21 very successful enterprises and we have only one vacancy, which I think is rather remarkable. And we think that the basic facility to create a place where small business could generate really has worked.

A number of them have been made loans from the SBA and the SBA office has been very helpful, and our mortgage is up-to-date and we are doing fine.

But our problem this morning is the problem of insurance. The first I would like to mention is the problem of fire insurance, which to some extent, has some possibility of solution in the existing pool setup. I would like to point out to you, however, how the problem originates.

If I may give you some hearsay from an insurance man, who claims that the local managers no longer have any authority and some fellow in the home office, a thousand miles away, is drawing lines on a map. Harper Court happens to be in the inner city. It's in an area with major institutions and homes which cost from $20,000 to $100,000. But that becomes irrelevant to somebody who draws a map a thousand miles away. The result of it was that one of the city's major firms was unable to place our fire insurance. We then went to a small broker and said we are having a real problem, what do we do? He went to some of his contacts and was turned down by one major insurer, and then got a commitment from another for 25 percent if he was able to get the other 75 percent.

He then tried some of the surcharge companies and was unable to obtain it. Finally he had to go to the FAIR program, and we got our insurance that way.

However, it took this broker 3 weeks to do it. My point is really a very simple one, What does the small businessman do without the leverage of a competent broker who is doing other business with you and who does this as a favor? And as the man says, it is not worth the effort.

The second point I would like to make is that there is no FAIR plan for burglary or theft. There is no FAIR plan for fire, I am told, for manufacturing enterprises. One of the things which the Federal Government has been tremendously concerned about is the production of jobs in the inner city.

How do you produce the jobs in the inner city if you cannot get fire insurance? If this factor is true, I think it would behoove the committee to find out. What do you do to create small job-creating enterprises?

The third area where there is a terrible problem, particularly in the small business field, is liability insurance. You cannot get such insurance in many areas of the inner city. Somebody slips on the floor and you have a lawsuit; you have no insurance. This is enough to put many people out of business.

This is without talking about things like business interruption insurance or rent insurance, which I wouldn't be without. I don't know what I would do if I were without it.

I would like to make one last point about what inner city merchants cannot get. He is unable to secure, on occasion, workmen's compensation. That is a really terrifying problem. If he can't get workmen's compensation he really has a problem.

Again, hearsay that is permitted at a congressional hearing-in talking about this problem, I said, "May I quote you?" And they said, "No, please don't."

And you can't blame them. They are dealing with the insurance companies. I said, "Why should workmen's compensation be a problem?" And he responds by saying, the workmen compensation carrier investigator who sees the same body shop on the south side of Chicago has an entirely different response to the nature of the risk than he does if he sees one in Park Ridge. And it is a tremendously difficult problem to place your workmen's compensation insurance in the city of Chicago.

Mr. HUNGATE. Mr. Chairman.

Mr. KLUCZYNSKI. Mr. Hungate.

Mr. HUNGATE. If the man had the requisite number of employees and his business grows, wouldn't he by law be required to carry workmen's compensation insurance?

Mr. SAGAN. Now, you have a part of the problem.

Mr. HUNGATE. He must violate the law if he stays in business then? Mr. SAGAN. Yes. The illustration I was giving was a small auto repair shop. The investigator walks in and sees somebody welding in the corner. He said, "My God, we have one burn case and the premium is wiped out for 20 years. We don't want this business, period."

I was told of one other illustration of the kind of attitude with which the inner city is faced. This had to do with a social agency with main headquarters in an inner city location, and which was buying land which it was going to use in connection with its program. This was way out in the suburbs, where, needless to say, there is no problem getting the kind of liability and fire insurance they need. There was no problem until they spoke with the insurance agency that "was going to help them out." They told the president of the agency where their office was, which happened to be in the heart of the city. And the agent swallowed three times and asked him wouldn't they care to come to his office rather than he go to their office.

And they began to have problems that they didn't have before. And again, it was a problem of dealing with lines on a map, not specific kinds of problems or specific kinds of enterprises or the nature of a specific risk, not that, but the simple drawing by an insurance executive of lines on a map-there will be no fire insurance here; there will be no burglary insurance there, regardless of the potential, the nature of the enterprise, the type of problems, or the specific circumstances of that risk.

And you know, we have several levels of problem areas in relation to these insurance questions.

If you have a specific territory with a high rate of robbery, you have a specific problem, and I will recognize that. I am going beyond that, to suggest that in their quest to make life simpler for themselves, the insurance companies have simply taken maps and drawn lines regardless of the nature of the problem or regardless of the nature of the enterprise.

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