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Economic Development

News &Vıews
Published by the Federal Reserve Bank of Chicago Consumer and Community Affairs Section

DELTA Loan Program Launched
Small businesses adversely affected by Department of Defense reductions
can participate in a $1 billion loan guaranty program.

Volume 2 Number 1
March 1996

The program, Defense Loan and Technical Assistance (DELTA), is jointly
sponsored by the U.S. Small Business Administration (SBA) and the
Department of Defense (DOD). It is designed to provide loans to help
many “defense-dependent” small businesses enter broader commercial
markets while retaining their defense capabilities, according to SBA
Administrator Philip Lader.

Inside this Issue:

Leadership
Women in Business
Finance
SBA Success News

“These loans will lend a much-needed helping hand to people working
hard to rebuild their businesses, communities, and local economies.
Small businesses are the backbone of our economy and it is imperative
that we provide them with every opportunity to succeed,” Lader said.
“This program will help small businesses become less dependent on defense
contracts and more adaptable to commercial markets. Wherever we can do
that, it’s good for employment, good for the American economy, and good
for the defense technological and industrial base.”

Loan Guarantees
Business Assistance
ADVOCAP

The program is financed by a $30 million DOD appropriation, enough
to underwrite about $1 billion in loan guarantees. Eligible borrowers can
participate in DELTA under one of two SBA loan programs. Under the
7(a) program, loans are limited to $1.25 million. Under the 504 Certified
Development Company program, SBA guarantees up to $1 million.

From Research
Midwest Manufacturing

DELTA loans can be used for working capital or to finance machinery and
equipment purchases, plant renovation, and other capital improvements.
The program is available nationwide.

Around the District
Off the Press
Advisory Council
Regulation
Calendar

To participate, applicants must have derived at least 25 percent of their
revenues in the previous fiscal year from defense contracts. They also must
meet small business size standards and other eligibility requirements of
SBA loan programs.
An applicant must also meet one of the following policy objectives:
• Job retention — The project should be designed to retain defense
workers whose employment would otherwise be terminated because
of defense reductions
• Job creation — It should create job opportunities and new economic
activity in communities adversely affected by defense reductions
• Plant retooling and expansion — It should modernize or expand the
applicant’s plant to enable it to remain in the national technical and
industrial base available to the Department of Defense. ■

Economic Development
News & Views is now
entering its second year.
We wish to thank you,
our readers and contributors, for your support.

Leadership Requires a Community Development Strategy
The goal of fostering and maintaining vital, growing communities is central to economic development and is the very heart of
the Community Reinvestment
Act. To help meet the needs of
low- and moderate-income residents, many lenders offer specialized loans and participate in
loan programs to meet the specific needs of disadvantaged
community members. Such programs can be profitable for the
institution, a benefit to the community, and play an important
role in its economic development.
As important as these programs
are, lenders are in a position to
do more. They can provide leadership in the economic development of their communities.
By assuming leadership roles,
financial institutions can become
catalysts for the revitalization of
economically distressed areas,
while providing safe, sound, and
profitable loans. Few other organizations in low- and moderateincome communities have the
resources and expertise to structure and implement an effective
economic development program.
Over time, it is expected that
their commitment to the community will attract private investment and create economic
growth.
In assuming a leadership role
in local community development, a financial institution
needs to develop a comprehensive Community Development
strategy. Each lender’s strategy
will be different because of differing communities and needs.
Nevertheless, in developing a
strategy, there are various factors
that any institution must consider, including:

2

• Internal Resources — The
institution needs to evaluate
its own internal resources to
determine how much it is able
and willing to devote to an economic development program.
It should include Community
Development activities as a
fundamental part of its business plan, to assure there is sufficient staff and management
time, capital, and equipment
allocated. Depending on the
institution’s size, the resources
could be an entire department
or a single person. Regardless
of size, some resources should
be available consistently and
should be devoted exclusively
to community and economic
development.
• Community Resources — The
institution needs to examine
the resources that the community has available, looking
for partnership opportunities
with capable and experienced
community development
organizations to help identify
community needs and help
structure effective development programs.
• Community Needs — Before
lenders can establish their programs and prioritize their
investments, they must understand the needs of the community. A partnership with an
existing community development organization can provide an information resource
to help identify community
needs and direct the lender’s
resources to investments that
can be most beneficial.
• Profitability — Lenders
should have a realistic idea
of the return they expect to
earn on community development investments and use
the expected return to help
guide their strategy.

Tapping Community Resources:
Partnerships with Community
Organizations
Any financial institution, large
or small, can benefit from
accessing resources in the community. Community-based nonprofit organizations are particularly good resources to identify
and associate with. Many lenders
have found that forming partnerships with nonprofits is a
good way to extend a bank’s
resources. Such partnerships
provide opportunities to
increase efficiency and limit
risk on the part of financial
institutions pursuing economic
development goals.
Smaller institutions particularly
have found that partnering with
non-profits is an effective and
efficient way to meet a community’s economic development
needs. Non-profit organizations
devote all of their resources to
improving their communities,
and, as a result, they can help
financial institutions identify
and prioritize community needs.
Relationships with nonprofits
can be mutually beneficial. Nonprofits can help lenders identify
critical needs and focus programs
geographically to achieve the
greatest impact. Lenders can
assist constituents of non-profits
in the loan application process.
Frequently these constituents
are small business borrowers
who must develop a business
plan to obtain financing and
SBA loan guarantees.
An added benefit of partnerships with nonprofit organizations is that banks can access
grant and financing programs
available only to nonprofits.
Examples of these include some
of the programs funded under
the Community Development
Block Grant Program, usually

administered through city or
county agencies, and Housing
and Urban Development programs used for housing rehabilitation. Other types of grant or
financing programs do not
require nonprofit applicants
but are more effective in cooperation with non-profits. Whether
oriented to small business,
housing, planning, or other
purposes, these programs help
to fill gaps where private funds
are not available.
Community Development
Investments
Many community development
investment options are available
to financial institutions. Investments in community development
corporations or other ventures
enable financial institutions to
play a direct role in public/
private partnerships for community revitalization and job creation. These investments can
help leverage public and private
funds, strengthen the capacity
of community-based organizations to undertake key projects,
and provide the capital to support other, more traditional
forms of bank financing.
A financial institution that limits
its role merely to lending is missing an opportunity. By taking a
leadership position in community development, a institution can
not only solidify its position in
the community, it can actually
promote economic development
that will provide both long- and
short-term benefits to the institution as well as the community. ■

Women in Business
Women’s Business
Ownership Council reports

Illinois’ Lt. Governor Bob Kustra
received the first copy of the initial
Annual Report published by the
Illinois Women’s Business Ownership Council. With him in the photo are Council members (from left)
Hazel King, Hedy Ratner, Diana
Conley (council chairperson),
Dolores Lopez, Marilu Meyer and
Mollie Cole. Two of the recommendations in the report strongly support affirmative action programs
and an increase in financing
options for women entrepreneurs.

The Illinois
Women’s Business
Ownership Council
recently issued a
nine-point policy
statement strongly
supporting affirmative action
and an increase in financing
options for women entrepreneurs.
These recommendations were
part of the Council’s first annual
report issued January 18, 1996.
The Council was formed in
October 1994 to provide a link
between the state’s quarter of a
million women business owners,
the Governor and the legislature.
Illinois is only the second state in
the country to have a Women’s
Business Ownership Council.
The report and its affirmative
action recommendation come
at a time when affirmative action
programs are under fire from a
variety of opponents. By making
a clear statement to maintain
these programs, the Illinois
Council joined other advocates
for women- and minority- owned
businesses in pressing their
elected officials for support.
Diana Conley, president of ComputerLand of Downers Grove
and chairperson of the Illinois
Women’s Business Ownership
Council, says the group’s mandate is “to identify barriers that
keep women-owned businesses
from full participation in the
state’s economy, to monitor how
state government promotes
women-owned businesses, and
to gather and circulate statistics
and data that offer a complete
picture of female entrepreneurship in the state.”

In 1995, its first year of operation, the Illinois Council worked
with numerous women-owned
businesses, conducted many
public hearings, testified before
the state subcommittee on equal
opportunity, and began developing a database of women-owned
businesses.
One important issue in 1995 was
selling to government agencies.
According to Conley, an important issue for the Council was
the “need to educate more
women business owners about
opportunities to sell goods and
services to state agencies, and we
recommended the state increase
its efforts in that direction.” Currently, Illinois has a goal of 5
percent of state purchases
directed towards womenowned businesses even though,
the Council notes, “more than
30 percent of all Illinois businesses are owned by women.”

mediaries for creative financing
strategies for women entrepreneurs, including increased bank
lending, investor-based equity
financing, individual development accounts, short-term
micro-loans, and linked-deposit
programs.”

For a copy of the annual report, or
additional information on the
Women’s Business Ownership
Council, contact Susan E. Nicol,
Executive Director, 100 W.
Randolph, Suite 3-400, Chicago,
Illinois, 60601, 312/814-8818. ■

Conley sees the 1995 Annual
Report as a reference catalog
about Illinois’ female entrepreneurs. “Women-owned businesses are a fast-growing segment of
the Illinois economy. There are
an estimated 242,590 womenowned businesses in Illinois, and
1994 sales generated by these
companies exceeded $25 billion.
The Council feels these statistics
must be repeated over and over
again to lawmakers, government
and private purchasing agents,
and anyone concerned about
the state’s economic health.
Strengthening women’s business
ownership is a public policy issue
vital to every citizen of this state.”

The lack of financing options
for women business owners is
another issue the Council
focused on in 1995. In addressing the issue, the Council
advised the State “to initiate
and support partnerships with
financial institutions and inter3

Finance
CDFI & Bank Enterprise
Awards Program
Applications are
now being
reviewed by the
U.S. Treasury’s
Community Development Financial
Institutions (CDFI) Fund for the
CDFI and Bank Enterprise
Awards (BEA) programs.
The CDFI Fund’s programs are
designed to facilitate the flow of
lending and investment capital
into distressed communities and
to individuals who have been
unable to take full advantage
of the financial services industry
. The initiative is an important
step in rebuilding poverty-stricken and transitional communities
and creating economic opportunities for people often left behind
by the economic mainstream.
The Fund received 262 applications for the CDFI Program and
50 applications for the Bank
Enterprise Awards Program.

The CDFI and BEA programs
were established by Congress to
help revitalize distressed urban
and rural communities by helping to create new jobs, promote
small businesses, and build
affordable housing. The CDFI
program is authorized to select
and provide financial and technical assistance to eligible applicants. The Fund intends to
award up to $31 million in CDFI
Program funds.
The Fund also intends to award
up to $15.5 million in Bank
Enterprise Award Program
Funds. The BEA Program is
authorized to provide assistance
to insured depository institutions for the purpose of promoting investments in Community
Development Financial Institutions and facilitating increased
lending and provision of financial and other services in economically distressed communities.
The Treasury Department estimates that one dollar of Fund
resources invested will generate
$10 in new development activity.

In a letter supporting the program, President Clinton wrote,
“The Fund will accomplish its
goal by facilitating the creation
of a national network of financial institutions dedicated to
community development, as well
as promoting lending and investment among traditional financial institutions. Representing a
new generation of community
development programs, the
Fund’s Bank Enterprise Program will catalyze investment
activities that complement and
support existing local reinvestment efforts. The Fund’s investments will help develop private
markets in distressed areas,
building healthy local
economies that will create new
jobs and promote small businesses. By ensuring greater access to
capital and credit, we will tap
the entrepreneurial energy of
America’s poorest communities
and help individuals and communities become self-sufficient.”
Secretary of the Treasury Robert
E. Rubin also supports the program. “The Fund’s CDFI Pro-

gram will work in partnership
with local community financial
institutions to provide critical
seed capital and technical support. The Fund’s seed capital
will leverage the private resources
essential to community development. The Bank Enterprise Program recognizes the important
role that traditional financial
institutions have played, and
should continue to play in serving the credit needs of distressed communities. The BEA
Program will build partnerships
between specialized and traditional lenders and encourage
such lenders to expand their
loans and other services to distressed communities.”
To help bankers complete their
applications for the Bank Enterprise Awards program, the Federal
Reserve Bank of Chicago hosted
a workshop last December. ■
The next issue of Economic Development News & Views will highlight
successful applicants and their programs in the Seventh District.

SBA Success News
LowDoc Loan Program
Like many other small-business
entrepreneurs, Balkrishna and
Nirmala Patel had a great plan
but no collateral.
The Patels run a successful
Dunkin’ Donuts franchise in Blue
Island, Illinois, and wanted to
add a Baskin-Robbins ice cream
franchise to their business.
The Dunkin’ Donuts did fine
during the early morning and
midday, peak hours for doughnuts and coffee. The Patels figured that if they added a Baskin4

Robbins to the same premises,
they could sell ice-cream items
for the balance of the day, thereby increasing overall sales significantly.

cation and a rapid response from
SBA loan officers, LowDoc allows
entrepreneurs to borrow up to
$100,000 quickly and easily.

The Patels had plenty of cash
flow but no collateral for a loan.
That’s when the First National
Bank of Blue Island, armed with
the U.S. Small Business Administration’s LowDoc program,
came to the rescue.

The Patels were well-suited for
a LowDoc loan, which relies on
the borrower’s good credit history and character. No predetermined percentage of equity is
required and lack of full collateral is not necessarily a determining factor.

LowDoc, which stands for low
documentation, is an extremely
popular, user-friendly SBA loan
program. With a simplified appli-

Last January, the First National
Bank of Blue Island loaned the
Patels $100,000 under LowDoc
to finance the purchase of the

new franchise. The deal was
made possible because of the
bank’s familiarity with LowDoc.
According to bank officials, the
loan might never have been
made without the LowDoc program and the SBA’s 90 percent
guarantee. The majority of
lenders would have turned the
Patels down because they had
no collateral. But thanks to the
SBA and the bank’s expertise,
the Patels were able to expand
their business and continue to
serve the community. ■

Loan Guarantees
Midwest Region leads
Nation in 1995 lending
Calendar 1995 was a banner year
for U.S. Small Business Administration lending programs,
according to John L. Smith, the
SBA’s Illinois District Director.
The Agency’s Midwest Region
ended calendar 1995 with nearly
7,500 loan approvals for more
than $950 million in the 7(a)
Loan Guaranty Program. The
Agency also approved more
than one thousand loans for
more than $346 million in the
504 Certified Development
Company Program.
According to Smith, the Midwest Region had a 107 percent
increase in loan approvals, twice
the national growth of 52 percent. “This was an enormous
increase nationally and that is
why we are especially proud of
our achievements in Illinois and
the region.”

Regionally, there was a 99 percent increase in loans to minorities, more than 40 percent more
than the national increase. Also,
there was a 140 percent increase
in loans to women, more than
50 percent more than the
national increase.
“Loans to veterans increased 85
percent, twice the national rate,
and export working capital loans
increased 400 percent, two and
one half times the national rate.
Overall, the volume of loans in
the Midwest Region led the
nation,” Smith said.
The SBA has several loan products that are very helpful to
small businesses. For example,
about two-thirds of the SBA’s
1995 guaranteed loans were
approved using the popular
LowDoc (Low Documentation)
Loan Program.

With LowDoc, the SBA uses a
one-page, two-sided application
and relies on the strength of the
applicants’ character and credit
history.
Businesses submit these loan
applications through banks
and commercial institutions
that participate with the SBA,
and the applications are usually
processed within one week.
Smith said, “We recognize and
appreciate the strength of our
partnerships and hope to reach
out to small businesses in an
unprecedented way in 1996.”
Financial institutions, readers,
veterans, and small business
owners are encouraged to contact the SBA to learn more
about its services and programs.

Small defense-dependent businesses,
economic development professionals,
and financial institutions are
encouraged to contact their nearest
SBA field office for more information
about DELTA, LowDoc, and other
small business assistance programs.
To identify the nearest office, consult
the government office listings in your
local telephone directory or call:
Illinois
Indiana
Iowa

Michigan
Wisconsin

312/353-4528
217/492-4416
317/226-7272
319/362-6405
515/284-4422
313/226-6075
608/264-5261

LowDoc reduces the paperwork
and time involved in loan
requests of $100,000 or less.

Communications
Advisors: Alicia Williams
Morris Reeves
Editor: Harry Pestine
Economic Development News & Views welcomes story ideas,
suggestions, and letters from subscribers, lenders, community
organizations, and economic development professionals.
If you wish to subscribe or to submit comments, call
(312) 322-8232 or write to: Economic Development News & Views,
Federal Reserve Bank of Chicago, Consumer & Community
Affairs Section, 230 S. LaSalle Street, Chicago, Illinois 60604-1413.
The material in News & Views does not necessarily represent
the official policy or views of the Board of Governors of the
Federal Reserve System or the Federal Reserve Bank of Chicago.

New Business Information Center
Servicing thousands of entrepreneurs this year, the SBA’s new
Business Information Center (BIC) is a high-tech business
resource library located in the agency’s Chicago District Office,
500 West Madison Street.
“As the word spreads, more and more small business people
are taking advantage of the BIC for everything from doing a
business plan by computer to researching census data. It’s an
incredibly valuable resource,” said John L. Smith, the SBA’s
Illinois District Director.
For information or access to the Business Information Center
call 312/353-1825.

Economic Development News & Views – ISSN: #1083-1657

5

Business Assistance
Small Business Development
Center news
Donald J. Dalton has overcome
far more than business obstacles
to develop his highly successful
company.
Five and a half years ago in his
Naperville garage, Dalton started Micro Overflow Corporation,
a distributorship which adapts
computer technology for the
disabled. Now he expects sales
to top $700,000. By any measure,
Dalton’s success is phenomenal,
but it is even more striking when
you realize that Dalton is paralyzed from the chest down as
the result of a diving accident
25 years ago and is confined to
a wheelchair.
Dalton started his business with
no working capital, no clients,
no track record, and no business
plan. “We have overcome what
many people thought were
insurmountable odds with this
business,” he said. That’s putting
it mildly.
In developing his business,
Dalton is also helping other
disabled entrepreneurs succeed.
Micro Overflow products are
helping disabled people who
have difficulties finding employment to enter the workforce.
Some are becoming entrepreneurs like Dalton.
Items distributed by Dalton to
help the disabled include voiceactivated word-processing and
computer equipment, screen
review products which read
aloud information typed into
a computer, document readers
that read aloud, information

6

scanners that read aloud, magnifying devices for the visually
impaired, and voice-recognition
systems which allow paralyzed
people to take notes by speaking.
Dalton credits the U.S. Small
Business Administration and
the DuPage County Small Business Development Center for
helping Micro Overflow grow
from a one-person operation with
$18,000 in sales to a ten-employee,
$700,000 operation today.
David Gay, Program Manager
for the DuPage County Small
Business Development Center
has worked closely with Dalton.
Gay stated that, “Mr. Dalton
tapped into resources and
expertise available through the
Small Business Development
Center at the College of DuPage
as he transformed his solo-operation into a viable organization
and leader in the field of assisted technology. SBDC staff assisted in market, financial and
organizational analysis, then
facilitated a strategic business
planning process with Don and
his management team. Through
SBDC guidance, a cohesive plan
was developed and implemented. As an added benefit, potential problem areas were identified in the rapidly growing
business allowing Mr. Dalton
to implement corrective actions
before situations got out of
hand.” ■
For additional information on the
DuPage County Small Business
Development Center and its programs, contact David K. Gay,
Program Manager, 708/942-2771.

Woodstock Institute
The non-profit Woodstock
Institute just issued a twovolume report compiling their
research on small business lending in low-to moderate-income
urban communities.
The report, Small Business
Lending for Economic Development
— Vol. 1, Strategic Responses for
Urban Communities and Vol.2,
Model Urban Programs is a result
of the Institute’s year-long
research.
Dove-tailing with this research,
the Institute also analyzed
the impact of SBA’s new lowdocumentation loan program
by reviewing the distribution
of SBA loans made before and
after the program’s introduction
in San Antonio, the pilot city.

This report, Moving To Economic
Development: A New Goal for SBA
Loan Programs, analyzes SBA
7(a) data and offers suggestions
for directing SBA programs
towards economic development
objectives. ■
For information, prices, and
ordering procedures, contact
the Woodstock Institute at
312/427-8070.

ADVOCAP
ADVOCAP continues to serve
the Fox Valley
Wisconsin’s Fox Valley is famous
for its paper industry and devoted Packer fans. Lately, it’s also
becoming known as the home of
ADVOCAP, Inc. And this makes
Mort Gazerwitz, ADVOCAP’s
director of business development,
very proud.
ADVOCAP, Inc., the non-profit
corporation serving Fond du Lac
and Winnebago Counties since
1966, provides assistance programs for people in need. Programs range from providing
food and emergency housing for
the poor, to offering technical
assistance to small businesses
and making micro loans to lowincome clients wanting to start
their own businesses.
The ultimate goal of ADVOCAP
is self-sufficiency through community development that fosters
job and economic opportunities
for citizens.
ADVOCAP helps create economic opportunities primarily
through its business development department. “Our purpose
is twofold,” says Gazerwitz.
“We’re able to provide intensive
technical assistance to lowincome people in all aspects
of starting a small business.
ADVOCAP works with these
new entrepreneurs and start-up
businesses through our Business
and Job Development Program,
which offers short-term management assistance and help in
developing business and marketing plans and in finding appropriate financing.”
ADVOCAP manages two loan
funds. One is a revolving loan
fund for very small business
loans. The other works through

the Small Business Administration’s pilot Micro Loan Program,
designed for small businesses
that previously have been turned
down for business credit by commercial banks.
In addition to the technical assistance and microloan funding,
ADVOCAP also operates two
business incubators in Oshkosh
and Fond du Lac. The incubators provide affordable space for
start-up businesses and reduce
their overhead by sharing clerical support and equipment.
ADVOCAP established the incubators to accommodate different
types of business that the incubators service. According to Gazerwitz, it’s more appropriate to
separate light manufacturing
from white-collar businesses.
“Not only is there a location
issue, but zoning plays a part,
too. Our Oshkosh facility, which
is predominantly light manufacturing, is located in an industrial
part of town, while our incubator in Fond du Lac, which is
almost exclusively office space,
is near Fond du Lac’s central
business district.”
ADVOCAP’s record indicates
that its business development
strategies yield some impressive
results. According to data compiled by the agency, nineteen
new businesses were started
through ADVOCAP in 1995,
resulting in 53 new jobs. “These
are not minimum wage jobs,”
says Gazerwitz. “Many of them
are paying from seven to ten
dollars an hour.”

asked us to expand into nearby
Green Lake County. This is a
challenge for us, because we’ve
had no real history in rural communities. We’re excited about it,
however. It’s not often that a
non-profit is invited to serve a
community!”
Green Lake County has long
been known for its agricultural
economy, its abundant natural
resources, and recreational activities. Recently, it has gained a
reputation as an affordable
retirement area and bedroom
community for nearby Fond du
Lac, Appleton, and Oshkosh.
ADVOCAP believes that its
housing and business development programs will work as well

ADVOCAP’s success is partially a result of the relative prosperity of the Fox Valley, which
has long been favorable to
business growth and development. Located in north central Wisconsin surrounding
Lake Winnebago, the region
takes its name from the Fox
River, which links Lake
Winnebago to the Great
Lakes. This important waterway provides inexpensive
transportation for the thriving
paper products and machinery industries.
The Fox Valley, including the
cities of Appleton, Oshkosh,
Neenah, Menasha, and Fond
du Lac, is one of the fastestgrowing areas in the Midwest.
Its population is approximate-

in rural areas as they have in
the urban areas of Fond du
Lac and Oshkosh. “There are
many single-parent families
and at-risk individuals in Green
Lake County,” says Bach. “Rural
poverty tends to be overlooked
when people discuss the needs
of low-income areas. Affordable
housing, for example, is particularly scarce in rural communities. The Green Lake County
Board recognized this and has
asked us to help them solve the
problem.” ■
For more information on ADVOCAP,
contact Mort Gazerwitz or Mary
Bach at the Oshkosh office of
ADVOCAP, 414/426-0150.

ly 500,000, the second-largest
in Wisconsin (following metropolitan Milwaukee).
According to data released
by the East Central Wisconsin
Regional Planning Commission in 1994, the region has
experienced a 9.3% population increase over the past
forty years, greater than the
6.7% increase for the rest
of the state.
Part of the Fox Valley success
story is its relatively stable
employment base. U.S.
Department of Labor statistics
for October, 1995, show an
unemployment rate of 2.8%,
slightly lower than the state’s
average rate of 3.2%.

ADVOCAP will celebrate its
30th anniversary in 1996 by getting bigger. Mary Bach, housing
director for ADVOCAP, says,
“Our reputation is so strong that
the Green Lake County Board
7

Seventh District Labor Markets
Unemployment conditions for fourth quarter 1995

Green Bay
Oshkosh
Saginaw
Sheboygan
Grand Rapids

Flint

Lansing

Madison
Milwaukee

Cedar Falls/Waterloo

Racine
Kenosha

Janesville

Dubuque

Rockford

Sioux City
Cedar Rapids

Benton Harbor

Davenport/
Moline

Detroit

Chicago

Kalamazoo
Elkhart

Iowa City
Des Moines
Kankakee

Peoria

Gary

Normal/
Bloomington Lafayette

Springfield
Decatur

Champaign/
Urbana

South
Bend
Kokomo

Terre
Haute

Average unemployment rates

Fort Wayne

Muncie

Indianapolis

Seventh District MSAs, 4th quarter 1995
Bloomington
5.5 and over
4.5 to 5.5
3.5 to 4.5
under 3.5

NOTE: Unemployment rates for MSAs are not seasonally adjusted. All rates are subject to revision.

8

Ann Arbor
Jackson

From Our Research Department
Labor market conditions in
the Seventh District
Labor market conditions
throughout most of the Midwest
are very good, according to
Federal Reserve Bank of
Chicago economists.
Labor markets remained tight in
the region through the fourth
quarter of 1995 although some
signs of weakening became evident in the auto-related and
retail trade industries. However,
this softening appears to be concentrated in these industries and
confined to a few metropolitan
areas.
The greatest concern continues
to be labor shortages. Placement
specialists across the region
report that unfilled orders for
both temporary and permanent
workers remained extraordinarily high with the shortages broadbased across occupations and
industries.
Unemployment rates are useful
indicators of labor market conditions in local areas. The unemployment rate is defined as the
percentage of adults in the
workforce who are not currently
employed but are actively seeking employment. It is calculated
using monthly payroll surveys
and unemployment insurance
records. Importantly, the workforce, and hence the unemployment rate, does not include
workers who are not actively
looking for work. This may mean,
for example, that workers who
have given up looking for work
are not counted as unemployed.

Unemployment rates are reported for Metropolitan Statistical
Areas (MSA). MSAs are defined
as economic areas encompassing
communities that are tightly
linked by a flow of commuters,
migrants, goods and services,
and payments. At the present
time, there are 42 MSAs in
the Seventh Federal Reserve
District, which consists of all
of Iowa, and portions of Illinois,
Indiana, Michigan, and Wisconsin.
The Seventh District is experiencing a vigorous economic
turnaround in comparison to
the early 1980s. In contrast to
that period, a more favorable
position of the dollar on foreign
exchange markets has enhanced
the region’s exports of agricultural products, consumer goods,
machinery, and equipment. The
machinery and equipment sectors, along with the important
automotive sector, have also

plant in Rockford, Illinois. In
addition, Atwood Industries,
an auto parts manufacturer,
announced permanent layoffs
of approximately 160 workers.
Moreover, average weekly
hours worked in manufacturing industries in the area has
declined considerably in yearover-year comparisons.

gathered momentum due to the
generally buoyant national economy. Finally, defense cutbacks
and base closings have bypassed
most of the region, or the effects
are not so severe in comparison
to California, New England, and
other coastal areas. Similarly,
other regions continue to shake
off the backlog of over built real
estate from the middle 1980s —
a market in which many parts of
the Seventh District region did
not participate as heavily. As a
result, many local areas are
reporting difficulties in hiring
skilled workers as well as
unskilled or entry-level workers.

• MCI expands in Cedar Rapids.
The expansion will create 400
new jobs, increasing total employment in MCI’s office to 900.
• Mitsubishi to open plant in
Indiana. Franklin County,
Indiana, received welcome
news when Mitsubishi Heavy
Industries announced plans
to build an automotive airconditioning parts plant
there. When completed,
the plant will employ nearly
300 workers. ■

Sig nificant recent developments
within the Seventh Federal Reserve
District included the following:
• Slowing automobile sales
impact Rockford. Chrysler
recently announced temporary
layoffs at its Neon assembly

Richard E. Kaglic
Associate Economist

Midwest Unemployment Rate
Percent
13

10

7

U.S.

Seventh
District
4
1977

’80

’83

’86

’89

’92

’95

9

Midwestern Metropolitan
Areas: Performance and
Policy
On November 28, 1995, the
Federal Reserve Bank of
Chicago held the first of a series
of workshops assessing the Midwest economy. This workshop
focused on the economies of
the region’s metropolitan areas.
It was the first step of the project
designed to develop a ten-year
overview of the Midwest economy, examining it from many
different perspectives.
This first conference emphasized the importance of enhancing the growth prospects of the
region’s metropolitan areas in
sustaining the region’s economy.
Metropolitan areas have become
a dominant feature of the economic landscape, and individual
metropolitan areas are becoming distinct and specialized as
they establish important economic linkages throughout the
nation and the world.
The technological changes
taking place in how we process
information are dramatically
altering the workplace and are
affecting where service firms
choose to locate. Metropolitan
areas that are suitable or those
that can adapt to these changes
will be more likely to grow and
prosper. Quality of life and cost
of living as they relate to labor
supply have become increasingly
important for many types of
service establishments.
Midwest metropolitan areas can
be distinguished from those in
other regions, and their differences will affect their prospects
for growth and influence their
optimal public policy focus and

10

direction. Historically, Midwest
metropolitan areas have been
heavily oriented toward manufacturing, so that the nation’s
service industry conversions may
be more challenging for this
region. So too, environmental
remediation of formerly used
industrial sites may present a
larger hurdle for the Midwest.
The region’s most rapid development took place during the
world’s age of mass industrialization from the late 1800s into
the early 20th century. For this
reason, Midwestern cities often
have a very dense core of population, with older buildings and
infrastructure. Recently, economic and residential activity
has been spreading out toward
the urban fringe, leaving behind
redevelopment problems for the
core. It is an open question
whether the current pattern of
economic deconcentration can
or should be stopped. A richer
understanding of the factors
that favor deconcentration and
the linkages within and between
metro areas is needed.
In addition to density problems,
central cities face a myriad of
other concerns. For example,
public services to the poor, as
well as public facilities that benefit the wider region, are becoming more and more the responsibility of the central city. Moreover,
some public policies seem to
have ample room for improvement. Notable here is federal
legislation to remediate environmentally-contaminated sites.
Decontamination alone may not
suffice. Central cities may need
to fashion policies to assemble
large parcels of land for redevelopment, even though the financial resources for such projects
may not be readily available.

’96

’92

’88

’90

Finally, if they are to achieve
growth or prosperity, city and
suburbs alike will need to
address the supply side of the
development equation. Workplace changes which require a
changing level and mix of skills
will be an important determinant. Some areas will also need
to address development from a
“human” perspective, involving
social issues such as health,
crime, and education. ■
William Testa
Assistant Vice President &
Senior Regional Economist
Richard Mattoon
Senior Economist

’94

Economic Development News &
Views will continue to summarize
the findings of this research
throughout the year. Orders for a
copy of the complete summary of
the November 28, 1995 Midwestern Metropolitan Areas: Performance and Policy Workshop can
be placed by contacting the Public
Information Center, Federal Reserve
Bank of Chicago, P.O. Box 834,
Chicago, Illinois 60690-0834,
Tel. 312/322-5111.

Tracking Midwest Manufacturing Activity
In December 1995, Midwest manufacturing activity experienced its
biggest decline since last March.
After reaching its highest level
of the year in September, the
Midwest Manufacturing Index
began a slight trend downward.

In contrast, the national measure
of manufacturing activity was virtually flat in December and only
slightly below its September peak.
Other measures of manufacturing
activity suggest more underlying

strength to regional production.
For example, purchasing managers’ surveys for Chicago, Milwaukee, and both the auto and
nonauto portions of Detroit indicated improvements in production for December, while western

Michigan showed contraction.
Auto production, both nationally
and regionally, actually increased
slightly in December after being
flat for two months. ■

Motor Vehicle Production
Sources: The Midwest Manufacturing Index (MMI)
is a composite index of 15 industries, based on monthly
hours worked and kilowatt hours. Industrial Production Index represents the Federal Reserve Board index
for the U.S. manufacturing sector. Autos and light
trucks are measured in annualized units, using seasonal adjustments developed by the Board. The purchasing
managers’ survey data for the Midwest are weighted
averages of the seasonally adjusted production components from the Chicago, Detroit, and Milwaukee Purchasing Managers’ Association surveys, with assistance
from Bishop Associates, Comerica, and the University of
Wisconsin — Milwaukee.

Millions, seasonally adjusted annual rate
7.5

Cars
6.0

Light trucks
4.5

Source: Chicago Fed Letter
Federal Reserve Bank of Chicago
March, 1996

3.0
1993

’94

’95

’96

Manufacturing output indexes (1987=100)
Midwest Manufacturing Index
Industrial Production Index

December
142.1
124.8

Month ago
142.7
124.7

Year ago
141.4
123.8

December
6.1
5.4

Month ago
6.1
5.4

Year ago
6.8
5.4

December
55.7
47.0

Month ago
52.5
46.1

Year ago
68.9
59.4

Motor vehicle production
(millions, seasonally adjusted annual rate)
Cars
Light Trucks

Purchasing managers’ surveys:
net percent reporting production growth
Midwest
United States

11

Around the District
Michigan
NBD Helps Revitalize Detroit
“We have reached a precedentsetting agreement with NBD,
and we are very pleased.”
— Reverend Wendell Anthony,
president of the Detroit branch of the
NAACP, referring to NBD’s Strategic Plan to help revitalize Detroit.
NBD has agreed to invest almost
$700 million over a three-year
period as part of its new community reinvestment effort to revitalize Detroit. The bank’s Strategic Plan commits $204.2 million
for the revitalization effort in
the first year.
Most of the loans will be for
small businesses, community

development, housing and home
improvements, and retail and
commercial ventures. Beyond
the dollar commitment, NBD
has pledged to step up both its
purchasing from minority firms
and the hiring and promoting of
minorities throughout its ranks.

•

•
The bank developed the Strategic Plan in cooperation with the
leadership of the Fair Banking
Alliance and the people of
Detroit. The plan calls for
major commitments to the
City of Detroit in 1995:
• $95.0 million for business
loans, of which $20.9 million
is for loans to businesses
with $1 million to $5 million
in sales, and $6.9 million to

•

•

businesses under $1 million in
sales
$76.1 million for consumer
loans and lines of credit, of
which $2.8 million is for home
improvement/home equity
loans and $0.7 million is committed to low income areas
$16.5 million committed for
commercial real estate
$14.6 million for mortgages,
of which $6.6 million is for
Low/Mod income areas, and
$2.2 million for low income
areas
$2.0 million committed to
the Community Development
Corporation

Wisconsin
Innovative Women’s Enterprise
Center opens in Milwaukee

The YWCA’s Women’s Enterprise Center opened on December 11, 1995. It offers programs
and other assistance to lowincome women who wish to
establish professional Careers
or become entrepreneurs.
The Women’s Enterprise Center
is a new, four million dollar stateof-the-art facility located on
Milwaukee’s north side, in a
predominantly low- to moderateincome community. The facility
provides training to low-income
women for non-traditional jobs,
typically skilled trades, which
tend to pay more than clerical
jobs. The Center also includes
a business incubator, where
small and start-up businesses
can rent office space and share

NBD Strategic Plan as of third quarter 1995

Commitment

YTD as of
3rd Qtr.

Percent of
1995 Plan

Business Loans
$1 to $5 million in sales
Below $1 million in sales

$95.0
20.9
6.9

$101.1
23.5
32.8

106.0
112.0
475.0

Mortgages
Low/Mod income area
Low income areas

$14.6
6.6
2.2

9.0
5.0
2.4

62.0
76.0
109.0

Consumer Loans and Lines of Credit
Home improvement/home equity
Low income areas

$76.1
2.8
0.7

44.6
7.0
1.4

59.0
250.0
200.0

2.0

1.2

60.0

16.5

7.6

46.0

Community Development Corporation
Commercial Real Estate
Grand Total

12

1995 Plan

$204.2

$163.5

80.0

clerical support for as little as
$150 per month.
The facility also headquarters
the Wisconsin Women’s Business
Initiative Corporation, a not-forprofit organization that offers
technical assistance and provides micro loans to businesses
owned and operated by women
and minorities.
For more information on the
YWCA Women’s Enterprise
Center, contact 414/374-1800.
Illinois
Kankakee County names new
Economic Development Council
President The Kankakee County
Economic Development Council
recently announced the appointment of Dick Durkin as President.

Durkin, former Regional Administrator of the U.S. Small Business
Administration, brings extensive
experience in community and
economic development to the
Kankakee River Valley. Durkin
indicated he was “focusing on
unifying and preparing the Valley for the demands of the 21st
Century.” His county-wide plan
will include marketing for new
industries, retention and expansion of existing industries, education, workforce development,
modernization/technology, and
small business development.

New housing director named
The State of Illinois has named
John N. Varones director of the
Illinois Housing Development
Authority. The agency is responsible for promoting and helping
to finance affordable housing
throughout the State of Illinois.
In addition to housing development, Director Varones stated
he sees “IHDA, through innovative, hardworking partnerships,
playing an increasing role in
revitalizing regions and helping
to foster neighborhood and community development activities.”

For information on the Kankakee County Economic Development Council and its services,
contact Dick Durkin, President,
815/935-1177.

For information regarding the
programs and services of the
Development Authority, contact
Bill Pluta, Manager, Office of
Housing Coordination Services,
312/836-5364.

The Guide provides an overview
of policies and procedures governing the formation of community development corporations
(CDCs) and other uses of equity
investments for community
development purposes. It also
covers key regulatory and strategic issues that financial institutions should address when making investments in CDCs,
low-income housing limited
partnerships, or other community development entities and
projects that benefit low- and
moderate-income communities.

investments by bank holding
companies. The Guide explains
how institutions may make community development investments without prior approval
from the Federal Reserve and
also clarifies when banks need
prior approval.

Indiana
Indianapolis Bank
receives state award
The State of Indiana recently
presented NBD Bank, NA in
Indianapolis, with the Capital
Access Program Award for the
most CAP loans made in Indiana in 1994. In 1994, NBD
made 30 CAP loans totaling
over $1.5 million. The Capital
Access Program is a state-sponsored initiative that guarantees
loans made to small businesses
that focus on economic development. NBD seems to be trying
for a 1995 CAP Award too. In
the third quarter 1995, NBD
made 29 CAP loans totaling
over $1.5 million. ■

Off the Press
Community Development
Investment Publications
The Federal Reserve Board produced two new publications to
help state member banks and
bank holding companies establish community development
corporations and to make equity
investments.
Community Development Investments: A Guide for State Member
Banks and Bank Holding Companies explains procedures for
establishing CDCs. The companion, Directory: Bank Holding
Company Community Development
Investments, is an annual update
of community development
investments by bank holding
companies.

It also highlights changes
regarding community development investments for state member banks and provides a new
interpretation of Regulation Y
for community development

The second publication, Directory:
Bank Holding Company Community Development Investments, profiles existing CDCs and investments made by bank holding
companies. Each profile
includes the amount of initial
capital invested by an institution, a description of community
development activities undertaken or planned, and the names
of contact people.

Both these publications provide
general guidelines. Any bank
holding company or state member bank that is considering
making community development investments should consult
with the Community Affairs or
Applications staff at their Federal
Reserve Bank.
To order single or multiple copies
of these publications, contact the
Community Affairs office of the
Federal Reserve Bank of Chicago,
P.O. Box 834, Chicago, Illinois
60690-0834. For further information, contact the Consumer and
Community Affairs Section at
312/322-8285. ■

13

Consumer Advisory Council
On January 19, the Federal
Reserve Board named nine
new members to its Consumer
Advisory Council to replace
those members whose terms
expired on December 31, 1995,
and designated a new Chairman
and Vice Chairman of the
Council for 1996.
The Consumer Advisory Council
was established by Congress in
1976 at the suggestion of the
Board to advise the Board on
the exercise of its duties under
the Consumer Credit Protection
Act and on other consumerrelated matters. The 30-member
Council, with staggered threeyear terms of office, meets three
times a year at the Board’s
offices in Washington, D. C.
Of the nine new appointees, two
were from the Seventh District
— Theodore J. Wysocki, Jr. of
Chicago, Illinois and Gregory D.
Squires of Milwaukee, Wisconsin.
Mr. Wysocki is executive director
of CANDO — the Chicago Asso-

ciation of Neighborhood Development Organizations. CANDO
is the largest city-wide economic
development coalition in the
United States, with 80 community-based nonprofit organizations
and more than 123 affiliate
members (including more than
40 banks.) It has been the primary advocate for industrial
retention of retail expansion in
Chicago neighborhoods, and
has worked with the City’s
Department of Planning and
Development to designate
twelve “Model Industrial Corridors.” Mr. Wysocki is Secretary
of the National Community
Reinvestment Coalition. He
serves on Chicago’s Empowerment Zone Coordinating
Council and is a longstanding
member of the Neighborhood
Lending Review Boards for two
Chicago Banks.

urban redevelopment initiatives
and mortgage lending and property insurance redlining. Mr.
Squires served three years as
president of the board of Northwest Side Community Development Corporation in Milwaukee.
He is a member of the advisory
board to the Metropolitan Milwaukee Fair Housing Council
and a consultant to the Fair
Lending Coalition in Milwaukee. For the past two years he
was on leave from the university
to head the newly created Insurance Unit in HUD’s Office of
Fair Housing and Equal Opportunity, which developed policies
clarifying application of the Fair
Housing Act to the property
insurance industry.

Mr. Squires is a Professor in the
Department of Sociology at
the University of Wisconsin —
Milwaukee. His research has
focused on the racial effects of

Thomas R. Butler
President and Chief Operating
Officer
NOVUS Services, Inc.
Riverwoods, Illinois

““Q”
14

John R. Pines, President
General Motors Acceptance
Corporation
Detroit, Michigan
Eugene J. Lehrmann, President
American Association of Retired
Persons
Madison, Wisconsin
Katharine W. McKee, Associate
Director of the Center for Community Self-Help in Durham,
North Carolina, was designated
Chairman. Julia M. Seward,
Vice President and Corporate
Community Reinvestment
Officer for Signet Bank in
Richmond, Virginia, was
designated Vice Chairman. ■

Wysocki and Squires join other
council members from the
Seventh District:

“
$
“ *”
...”
“!” ¢
“A”

%
“

”

”

Regulation
Regulation: What should
regulators do?
On May 1-3, 1996, the Federal
Reserve Bank of Chicago will hold
its 32nd annual Conference on
Bank Structure and Competition.
This year’s Conference on Bank
Structure and Competition will
examine whether banking
should be regulated, and if so,
what are the effects of such regulation, and what is the optimal
regulatory structure.
The conference, titled “Rethinking Bank Regulation: What
Should Regulators Do?” will
be presented on Wednesday,
Thursday and Friday, May 1-3,
at the Westin Hotel in Chicago.
The first day of the conference,
intended primarily for an

academic audience, will focus
on technical research papers.
The Thursday and Friday sessions will appeal to a more
general audience.
The conference will feature discussions of policy issues by some
of the industry’s most prominent
members. Featured speakers
include Alan Greenspan, Chairman of the Board of Governors
of the Federal Reserve System,
and James Leach, Chairman of
the U.S. House of Representatives Banking Committee.
Other speakers include Thomas
Brown, Donaldson, Lufkin, and
Jenrette; John Hawke, U.S.
Treasury Department; Edward
Kelley, Board of Governors of
the Federal Reserve System;
and Lee Hoskins, Chairman

and CEO, Huntington National
Bank and former president of
Cleveland Fed.
These and other speakers will
“rethink bank regulation,”
addressing questions such as:
• Should banks be regulated
to suppress market forces?
• How can regulation address
market failures?
• Can regulations be tied to
specific market failures?
• Should regulation be structured by institution, industry,
or function?
• Should a single regulator
supervise a broadly defined
financial services industry?
• Are there advantages to international coordination among
regulators?

Invitations to the conference
will be mailed in March. If you
are not currently on the conference mailing list and would like
to receive an invitation, please
contact the Meeting and Travel
Services Department at the
Federal Reserve Bank of Chicago
at 312/322-5186, or mail your
request to Public Information
Center, Federal Reserve Bank
of Chicago, P.O. Box 834,
Chicago, IL 60690-0834. ■

1996 Calendar
March 6-9
Washington, DC
“Building Community Wealth:
CRA... .” Sponsored by the
National Community Reinvestment Coalition. Contact: John
Taylor at 202/986-7898.
March 6 & 7
Springfield, Illinois
“Rural Community Development: Strengthening the Partnership.” Sponsored by Illinois
Institute for Rural Affairs and the
Federal Reserve Bank of Chicago. Contact: Norman Walzer at
800/526-9943
March 13
Chicago, Illinois
“SBA LowDoc Training Workshop for Bankers.” Cosponsored
by the SBA and Illinois Small
Business Development Network.
Contact: Carson Gallagher at
312/814-6111.

April 4
Springfield, Illinois
“SBA LowDoc Training Workshop for Bankers.” Sponsored
by the SBA. Contact: Bob Paoni
at 217/492-4416.
April 10
Chicago, Illinois
“SBA LowDoc Training Workshop for Bankers.” Cosponsored
by the SBA and Illinois Small
Business Development Network.
Contact: Carson Gallagher at
312/814-6111.
May 2
Springfield, Illinois
“SBA LowDoc Training Workshop for Bankers.” Sponsored
by the SBA. Contact: Bob Paoni
at 217/492-4416.

May 1-3
Chicago, Illinois
“The 32nd annual Conference
on Bank Structure and Competition” Sponsored by the Federal
Reserve Bank of Chicago.
Contact: 312/322-5186.
May 8
Chicago, Illinois
“SBA LowDoc Training Workshop for Bankers.” Cosponsored
by the SBA and Illinois Small
Business Development Network.
Contact: Carson Gallagher at
312/814-6111.
May 16-18
Orlando, Florida
“1996 NADCO Annual Meeting.”
Sponsored by the National Association of Development Companies. Contact: 703/812-9000

June 12
Chicago, Illinois
“SBA LowDoc Training Workshop for Bankers.” Cosponsored
by the SBA and Illinois Small
Business Development Network.
Contact: Carson Gallagher at
312/814-6111.
June 24-25
Chicago, Illinois
“The Retail Industry and Economic Development.” Sponsored by
the National Council for Urban
Economic Development.
Contact: 202/223-4375
July 10
Chicago, Illinois
“SBA LowDoc Training Workshop for Bankers.” Cosponsored
by the SBA and Illinois Small
Business Development Network.
Contact: Carson Gallagher at
312/814-6111.
15

Recycled Paper

Consumer and Community
Affairs Section
Federal Reserve Bank
of Chicago
230 S. LaSalle Street
Chicago, IL 60604-1413

Economic Development
News &Vıews is published
three times a year by the
Federal Reserve Bank of
Chicago, Consumer and
Community Affairs Section.
Please address all
correspondence to:

Volume 2 Number 1
March 1996

News &Vıews

Economic Development