gage capital to central cities. I expect that legislation to be considered on the floor this afternoon.

And yet, our work in this area has really just begun. While there is no HMDA-like data available detailing the amount of small business credit activity done with minority and inner-city businesses, the committee has heard from several sources which indicate that there are significant blockages to capital access for minority owned and inner-city business development.

There have also been several accounts in the press of the capital starvation gripping minority and inner-city businesses, and we're going to hear some about that today.

In fact, in a recent Wall Street Journal survey of black business owners, lack of access to capital is cited as the number one problem that they face on a daily basis.

The impact of impediments to capital for inner-city businesses extends beyond just the businesses themselves. Inner-city firms that cannot gain access to capital cannot expand and thus, cannot provide jobs which are so vital to community revitalization.

I am absolutely convinced and have a very deep conviction that whatever steps are necessary must be taken to ensure that credit and capital is afforded to all of our communities, and particularly those communities that have not been able to participate fully up to this time.

We're fortunate to have with us today a distinguished group of panelists and I will introduce them just a little later.

I just want to make one other comment.

And that is, the more that I study this issue and work with this issue on inner-city situations in Michigan and across the country and talk with others who devote great time to it, the more convinced I am that only by unlocking a river of capital that can make its way into inner-city situations are we going to be able to really start to get the lift from those communities that is so urgently needed.

There are a host of other factors that have to do with the education system and the health system and the housing stock and other things that have to be addressed at the same time. But capital, by itself, I think can probably do as much as anything if it's available on a fair and equitable basis to entrepreneurs and to businesses and to others seeking home loans or whatever it happens to be, in our inner-city locations.

I think we can probably get as much new strength that way as any other way.

I'm concerned because I think the patterns make it clear that the flow of credit has not been available as it properly and fairly should have been. In areas where special efforts have been made, the data bears out the fact that good loans can be made, businesses can thrive, people taking down the credit pay it back.

That ought to be a sufficient basis for us to understand that the denial of credit in other areas is seriously strangling a part of our country and the people that live in those areas than otherwise needs to be the case.

So I'm very anxious to get into this today. Let me call on Senator Garn.

OPENING STATEMENT OF SENATOR JAKE GARN

Senator GARN. Thank you, Mr. Chairman.

With two panels today and a busy schedule, I would ask that my entire statement be placed in the record in order to save some time, and then I will just make a brief comment.

The CHAIRMAN. Without objection, so ordered.

Senator GARN. I certainly agree with what the chairman has had to say about the need for capital formation. Certainly in the inner cities, that is necessary.

But I must indicate at this point that there is an overall problem. Everybody is aware of what has been known as the credit crunch. One of the major reasons that there is a credit crunch, in addition to the particular problems we'll discuss today of the innercity, is that the Government, both at the local, State and Federal levels, is making it more and more difficult for small businesses to form.

Frankly, I think the Government gets in the way of that process at virtually every level. We impose taxes that discourage capital investment. We tax the same money twice when it is earned by the corporation and then distributed to its shareholders. We have unnecessary regulation of businesses themselves and the financial entities that support them.

Until we start solving the overall problem with less Government interference and more incentives for capital formation in general, it will be even more difficult to provide the capital necessary for businesses in the inner cities, and particularly for minority busi

nesses.

So I think we have to look at both, the situation of redlining that has existed and denial of credit and good loans that could have been made in the inner cities to and minorities. But unless we address the overall credit crunch that is due, at least in part, to Government overregulation and lack of incentives, we're not going to solve either, Mr. Chairman.

PREPARED STATEMENT OF SENATOR JAKE GARN

Mr. Chairman, this hearing will consider the availability of capital to businesses that serve inner-city and minority communities, especially small minority-owned businesses. I am pleased that we can discuss this topic, because small businesses are the bricks that form the foundation of our economy. They are the engines that carry the personal fortunes of millions of Americns and our country forward as they produce jobs, deliver services, manufacture goods, and provide an opportunity for workers and entrepreneurs to take advantage of the free enterprise system.

Most of the jobs that were created in the 1980's were formed by small businesses established and expanded during that time. However, it is very difficult for people to start and sustain small businesses. A person with the dream of starting his or her own businesses needs the vision, financing, knowledge, and opportunity to make that dream a reality.

Despite those difficulties, the Census Bureau reports that, between 1982 and 1987, the number of black-owned firms grew by 424,000, or 38 percent, compared with an overall 26 percent growth in the number of U.S. companies. The revenue of black-owned

firms grew by 106 percent, compared with a 55 percent rise in revenue for all U.S. business. However, minority owned businesses still total less than 10 percent of all American businesses.

So, we should try to make it easier for small businesses to form. Frankly, I think the Government usually gets in the way of this process. We impose taxes that discourage capital investment, we tax the same money twice when it is earned by corporations and then distributed to shareholders, we stifle business formation and growth by unnecessary regulation of both the businesses themselves and the financial entities that support them.

Mr. Chairman, I look forward to discussing ways to improve the economic success of minority-owned and all small businesses, but I think that the economic successes this country has enjoyed may be more in spite of Government than because of it.

Thank you.

The CHAIRMAN. Senator Domenici?

OPENING STATEMENT OF SENATOR PETE V. DOMENICI Senator DOMENICI. Thank you, Mr. Chairman.

I have some opening remarks that I would ask you to make part of the record as if read.

The CHAIRMAN. Without objection, it is so ordered.

Senator DOMENICI. Mr. Chairman, I'm not sure that I'll be able to stay here longer than perhaps another 25 or 30 minutes. Frankly, I am very concerned about getting capital into the hands of minority Americans who live in distressed areas.

First, I wonder if somebody might tell us later on in the testimony whether minority owned banks lend money to minorities. And if they do, do they lend to minorities who live in the areas that are desperately in need of capital, or do they lend it to minorities in other neighborhoods.

If minority banks don't lend money to minorities, I think the question is why not?

Second, is there any evidence that with the increased number of minority owned financial institutions, that they are helpful. If they are, then I guess the question is why don't we have more?

My third concern has to do with minority business. I wonder if we have any indication whether minority students, college and post-graduate are pursuing the study business administration in any significant number. If not, why not, and what could we do about that.

My guess is there is not such an inclination, and I wonder why we don't encourage it.

Ultimately, banks are not going to lend money unless, in the business sense, it's worth the risk. And if they're having difficulty lending monies now because of the credit crunch, it would seem to this Senator it would be almost impossible for minority businesses to get loans now for businesses.

People who have been successful in business for many, many years, are having difficulty getting money for expansion on a credit basis.

The 8(a) program was intended, and is still intended, to be the U.S. Small Business Administration's principal access point for minority businesses.

We create some special privileges for minorities to get started with the understanding that they're being given some special preferences. They don't have to bid, for instance.

Is that program working? If it isn't, are there any suggestions on how to improve it, even if the reforms would not be in this committee's jurisdiction?

And are there any programs, even if they're very small, that are working with reference to leveraging money into the hands of minority businesses?

I know of one. The Department of Energy, believe it or not, has a very, very interesting program. It deposits fines and penalties that it has accumulated in minority lending institutions. And they think they will have about, hopefully, about $240 million to invest. All of it will be invested in certificates of deposit in minority banks. That's a very exciting concept because, obviously, if minority banks are working, they ought to be lending money to minorities. The few that I have looked at are. And if we can put money in on the capital side of that bank, it seems to me we dramatically increase their capitalization and their efforts to lend additional money.

This leveraging that will occur with this DOE money is being studied and evaluated. If DOE's preliminary assessments are right, this program will result in a very big leveraging. If you put $5 million into a minority bank, the money that's loaned is much, much more than $5 million.

So I'm willing to look at any of these things. I tend to think that unless and until more and more minorities get into business in the areas where their people live, that the chance of our American system of capitalism working is in serious, serious doubt for the minority people of the country.

PREPARED STATEMENT OF SENATOR PETE V. DOMENICI I want to thank the Chairman for holding this timely hearing on investing in distressed urban communities.

In the aftermath of the Los Angeles upheaval, American institutions-public and private-are being called upon to help revive the Nation's inner cities.

Many have argued that the ultimate solution must be the injection of capital into inner cities, which will provide inner-city and minority communities an opportunity to take control of their own destiny. As with all "simple solutions" it is easier said then done. As the economy has weakened and the bank regulatory environment tightened, obtaining capital for small businesses in distressed communities has become increasingly difficult. It is even more difficult for new start-up small businesses.

While banks and financial institutions are required to provide low-income and minority lending for home mortgages, few banks have stretched these requirements to business lending.

As we explore ways to inject capital into inner-city businesses, we need to maintain a balance between forcing healthy, profit-making banks into unprofitable activities that will drain the deposit insurance funds. Yet, we should keep pressure on financial institutions to do more in this area through public-private partnerships.

I have been pleased with the New Mexico bankers' ability to create public private partnerships for housing and community development projects.

Recently the New Mexico Mortgage Finance Authority has started a pilot program with the Federal Home Loan Bank System to get below market lending rates for housing and rehabilitation projects.

In addition, local housing organizations have been working with the New Mexico bankers, business leaders, and local government to obtain Federal HOPE III money for a housing rehabilitation project. This project will combined Federal, local and private sector dollars and ideas to develop a comprehensive approch to community development.

There is also a little known program that has existed at the Department of Energy since 1970 in the Office of Minority Economic Impact. This program helps capitalize minority and women-owned financial institutions around the country.

The program has been expanded this year, and over the next seven months $240 million collected by the DOE from certain settlements and fees will be deposited in 120 minority and womenowned financial institutions. Each minority institution receives $2 million in working capital.

The funds used to capitalize these institutions don't cost taxpayers a dime. The financial institutions treat the investment like a Certificate of Deposit and pay the DOE the Treasury bill rate. These public-private partnerships have been profitable for the banks, helped community organizations obtain capital, and have not put a drain on deposit insurance funds. Capital creates opportunities.

In closing, as the deficit grows, the Federal Government has less resources to address new problems and subsidize interesting public private partnership initiatives. Congress will continue to look at State, local, and profit making institutions to address problems.

While we have great needs, we should balance our inability to financially respond to problems by protecting the deposit insurance funds from losses and ensuring that private sector institutions can earn profits.

Thank you very much, Mr. Chairman.

The CHAIRMAN. Thank you, Senator Domenici.

On that point, before yielding to Senator Kassebaum, I think we don't have a great number of minority-owned banks and they tend not to be terribly large or, for that matter, very strong, if you look at the whole national banking picture. And I think whatever we can learn from looking at them, we ought to do so.

But I would hope that we would not in any way by omission not focus on the question of what the majority owned banks are doing. That's a much greater concern to me. I would guess, I've asked to get the data, I think of the total assets of the banking system, over 99 percent, and I'll double-check this and correct the record if I'm wrong, are held by what we might call majority banks.

Senator DOMENICI. Sure.

The CHAIRMAN. So, I would not want any suggestion left on the record that if the minority banks somehow just sort of stepped up