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Public Meeting Transcripts

Public Meeting Regarding Fleet Financial Group, Inc., and BankBoston Corporation

Wednesday, July 7, 1999

Transcript of Panel Nineteen

       18            MR. CARVALHO:  Good evening.  My name is 
         19   Frank Carvalho, and I'm the Executive Director of 
         20   the Coalition for a Better Acre, a community 
         21   development corporation in Lowell, Mass. 
         22            I'm here tonight to testify as executive 
         23   director of a community development corporation that 
         24   deals with low- to moderate-income residents in the 
         25   oldest and poorest neighborhood of Lowell, and I'm 
          1   very concerned about this proposed merger. 
          2            First, it's hard for me to understand why 
          3   this new proposed entity refuses to deal with my 
          4   trade organization, the Massachusetts Association of 
          5   Community Development Corporation, who we chose to 
          6   represent our community. Second, why can't they make 
          7   specific commitments in response to our proposals? 
          8            I urge you to support us in the following 
          9   requests:  that Fleet and BankBoston develop a 
         10   detailed and publically verifiable community 
         11   reinvestment plan negotiated with community 
         12   organizations and elected officials with specific 
         13   commitments ensuring the net benefit to low- and 
         14   moderate-income and minority communities. 
         15            Two, to extend the public comment period 
         16   until such brand is developed and released to the 
         17   public, and to issue no approval unless and until 
         18   the aforementioned conditions are fully met. 
         19            This is our hope, that the mergers of the 
         20   largest banks in New England should benefit low- and 
         21   moderate-income and minority communities as well as 
         22   shareholders.  One plus one should equal more than 
         23   two. 
         24            This is very important because each bank 
         25   has been a significant part of the solutions for our 
          1   community through their grant program.  I went to 
          2   BankBoston to help CBA to put 16 low- and 
          3   moderate-income residents of Lowell into their first 
          4   houses as homeowners.  We are very proud of them.  
          5   And a grant from Fleet Bank has allowed CBA to 
          6   develop 50 resident leaders who are researching and 
          7   addressing community obstacles such as child care, 
          8   transportation, lack of benefits and other issues 
          9   relating to the employment issues that affect low- 
         10   and moderate-income residents of our city to get 
         11   good and liveable wage jobs. 
         12            Fleet Bank and BankBoston should ensure 
         13   that one plus one will be greater than two in 
         14   charitable contributions for community development.  
         15   They should include what we propose, which is a $5 
         16   million statewide charitable budget for the Year 
         17   2000 and increasing beyond that.  It is currently 
         18   estimated that the merged banks' Chapter 102 
         19   obligation to the Mass. Housing Partnership fund, 
         20   MHP, could range hundreds of millions of dollars in 
         21   net financing. 
         22            The merged bank could help to meet the 
         23   critical equity needs in the affordable housing 
         24   development market by converting all or a majority 
         25   of the debt to a grant that can be administered by 
          1   the MHP fund.  This would greatly contribute to the 
          2   development of affordable housing.  BankBoston's 
          3   grant conversion at the time of the last merger 
          4   yielded approximately one grant dollar for every $9 
          5   of debt.  As a result, MHP was able to capitalize a 
          6   firm plus program with over 367 affordable rental 
          7   units financed through firm plus.  It also allowed 
          8   MHP to capitalize the fund resulting in additional 
          9   241 units. 
         10            The merged bank should result in Fleet and 
         11   BankBoston's participation in the Basic Banking for 
         12   Massachusetts program that offers low-cost checking 
         13   and savings accounts targeted to low-income 
         14   consumers who have been discouraged from using the 
         15   banking system by high transaction fees.  The new 
         16   bank should adopt a program that allows ten checks 
         17   and ATM transactions per month with a $2.50 fee and 
         18   75 cents per additional check. 
         19            In addition, the bank should create an 
         20   aggressive campaign to market its products in low- 
         21   to moderate-income and minority communities. 
         22            Finally, Fleet and BankBoston can best 
         23   assure that these goals are met by negotiating and 
         24   signing the Community Investment Agreement with 
         25   MACDC covering the above-discussed items and others 
          1   in the proposal previously forwarded to them.  The 
          2   agreement should be for at least five years.  It 
          3   should include a process and commitment to 
          4   renegotiate an extension of this agreement for an 
          5   ongoing relationship. 
          6            It should also include provisions for 
          7   regular communication among the parties, plus 
          8   specific mechanisms for reporting and verifying that 
          9   the goals of the agreements are being met.  By 
         10   agreeing to enter this agreement, the new entity 
         11   would assure that my community needs are being met, 
         12   and sending a loud and clear message that one plus 
         13   one does equal more than two.  Thank you for 
         14   listening. 
         15            HEARING OFFICER SMITH:  Thank you very 
         16   much. 
         17            Mr. Colton. 
         18            MR. COLTON:  Thank you.  My name is Roger 
         19   Colton.  I am an attorney and a member of the 
         20   Belmont, Massachusetts, Fair Housing Committee.  I 
         21   speak tonight on behalf of the Belmont Fair Housing 
         22   Committee, an arm of the local government of the 
         23   Town of Belmont. 
         24            One question presented to federal 
         25   regulators by the proposed merger of Fleet Financial 
          1   Group and the BankBoston Corporation is whether the 
          2   merged bank will adequately address the credit needs 
          3   of the community.  In assessing whether this will 
          4   occur, there is a need to differentiate between the 
          5   urban and the suburban communities.  There is a 
          6   significant focus of attention today on the urban 
          7   community.  Unfortunately, there is much less 
          8   attention focused on the suburbs.  One of the next 
          9   major steps that must occur in fair housing lending 
         10   is to facilitate the diversification of suburban 
         11   communities. 
         12            My discussion tonight focuses on one slice 
         13   of Boston suburbia, beginning with Belmont and 
         14   radiating north and west eventually to capture the 
         15   communities of Belmont, Waltham, Lexington, Woburn 
         16   Winchester, Arlington, Burlington, Bedford, Sudbury 
         17   and Concord.  Information on Lincoln was sought but 
         18   was not available. 
         19            Unfortunately, it is not only difficult but 
         20   it is impossible to discuss the data in five 
         21   minutes.  Accordingly, I will present our 
         22   conclusions to you this evening and commend our 
         23   written presentation to you for perusal of the 
         24   supporting data.
         25            The first major credit need in the suburban 
          1   community relevant to tonight involves the promotion 
          2   of socioeconomic diversity.  One lesson found in the 
          3   available data from the ten study communities is 
          4   that the affordability of units is not the only 
          5   barrier to home ownership in the ten communities 
          6   studied.  Home ownership is unavailable even when 
          7   affordable home ownership opportunities exist. 
          8            Information was obtained for each of the 
          9   study communities on the number of units that are 
         10   affordable at different levels of median income.  
         11   This information shows that merely because a unit is 
         12   affordable at a designated income level does not 
         13   mean that it is actually occupied by a family or 
         14   household with that income. 
         15            It is often asserted that Boston's suburban 
         16   community lacks a greater socioeconomic diversity 
         17   because of the lack of affordable housing.  The data 
         18   confirms that this is frequently the cause.  The 
         19   data further show, however, that something more 
         20   stands as a barrier to socioeconomic 
         21   diversification. 
         22            The data present a compelling case that 
         23   when and where affordable home ownership units 
         24   exist, they are not being purchased by households at 
         25   lower incomes.  To meet the needs of diversifying 
          1   the suburbs, specific proactive steps are necessary.  
          2   From a fair housing lending perspective, this need 
          3   is more than simply to avoid discrimination. 
          4            The second major credit need in the 
          5   suburban community, as relevant for purposes 
          6   tonight, involves the promotion of racial and ethnic 
          7   diversification.  The data from the ten study 
          8   communities used for our report show a lack of 
          9   diversification even when controlling for income as 
         10   measured by percent of median income. 
         11            Merely because units may be affordable to 
         12   households of color does not mean that households of 
         13   color are becoming homeowners in these suburban 
         14   communities.  The lack of racial and ethnic 
         15   diversity in the ten study communities cannot be 
         16   attributed exclusively to the lack of affordable 
         17   housing availability. 
         18            By definition the price of housing was not 
         19   the limiting factor in our analysis.  The data was 
         20   limited to housing determined to be affordable at 80 
         21   percent of median income or more with which to 
         22   begin.  The data was also limited to 
         23   African-American and Hispanic households who have 
         24   income of at least that amount. 
         25            Something more than the mere affordability 
          1   of home ownership is creating barriers to suburban 
          2   home ownership for households of color. 
          3            So why do I present all of this tonight to 
          4   you folks?  Identifying and seeking remedies for 
          5   barriers to diversity and home ownership is one 
          6   essential element in fair housing lending.  Fair 
          7   housing lending involves more than merely avoiding 
          8   discrimination.  Fair housing lending has as its 
          9   ultimate goals the elimination of the effects of any 
         10   fair housing impediments outside the lender's 
         11   control and the elimination of any identified 
         12   impediments within the control of the lender. 
         13            This proposed merger should not only not 
         14   impede but should affirmatively promote this 
         15   construct of fair housing lending. 
         16            Based on the two credit needs of the 
         17   suburban communities which I previously identified, 
         18   it would be appropriate for a Fleet-Boston to commit 
         19   to working with the Greater Boston fair housing 
         20   community to develop a plan of action to promote the 
         21   diversification of the suburbs. 
         22            This plan should include a stated goal, 
         23   supported by both short-term and long-term 
         24   objectives, a written work plan in furtherance of 
         25   accomplishing those objectives, an evaluation 
          1   mechanism to determine performance relative to the 
          2   stated objectives, and a review mechanism charged 
          3   with utilizing evaluation to formulate 
          4   recommendations on modifications as needed to the 
          5   plan of action should the objectives not be 
          6   achieved. 
          7            Thank you for providing an opportunity for 
          8   a representative of local government to speak with 
          9   you tonight.
         10            HEARING OFFICER SMITH:  Thank you.
         11            And we'll move to Mr. Cusick. 
         12            MR. CUSICK:  My name is Pat Cusick.  I'm 
         13   the Executive Director of the South End Neighborhood 
         14   Action Program, SNAP, in Boston, and for the record, 
         15   I reside at 521 Shawmut Avenue in the South End of 
         16   Boston. 
         17            I'm departing from my written testimony.  
         18   It has been noted that something unusual has 
         19   happened here today.  Of the 72 organizations 
         20   testifying in favor of the acquisition by Fleet in 
         21   the charitable lending category -- of the 75 that 
         22   testified here today, 72 are nonprofits. 
         23            Now, I'm not against nonprofits.  I'm the 
         24   executive director of a nonprofit.  But isn't that 
         25   strange?  Where are the small businesses?  I would 
          1   hope that the Fed would be concerned.  I mean, 
          2   really, this is astounding. 
          3            For most of my professional career, I've 
          4   been concerned with affordable housing, affordable 
          5   rental housing.  I was the organizer that seized the  
          6   Harvard commencement in 1970 and held it hostage 
          7   over the issue of affordable housing. 
          8            In the 1980s I was the organizer of a 
          9   coalition in my neighborhood that enabled 360 
         10   families to live in affordable housing that cost $60 
         11   million.  I myself am the owner/developer of a 
         12   nonprofit that has won national honors in the South 
         13   End, 84 units of limited equity co-op housing. 
         14            But I've shifted my principal concern after 
         15   all this time from being concerned about rental 
         16   housing to that of home ownership.  Maybe it's 
         17   because in my neighborhood, in Lower Roxbury, less 
         18   than 5 percent of the units are home ownership.  
         19   Now, I'm going to repeat that, because that's the 
         20   least amount in the city of Boston, less than 5 
         21   percent are home ownership.  And that is in a city 
         22   which, as you know, has the least amount of home 
         23   ownership in the United States. 
         24            Now, this is a terrifying statistic when 
         25   you think about it, and this is why that 
          1   neighborhood is so vulnerable to every takeover of 
          2   any sort.
          3            Home ownership is more than shelter.  It is 
          4   more than a psychological support for families.  
          5   Home ownership is not only part of the American 
          6   dream, but on a scale that doesn't have anything to 
          7   do with individual housing, home ownership sinks 
          8   roots into the communities.  And in the low income 
          9   communities, there are very few roots.  And when you 
         10   have rootless communities, the entire community and 
         11   then the entire city is at risk.  We desperately 
         12   need more home ownership. 
         13            Now, at this portion of my testimony, I was 
         14   going to reiterate Professor Campen's excellent 
         15   report, but there is no need to do that; you have 
         16   the report, you have heard from him. 
         17            I just want to make a plea that we really 
         18   need home ownership.  What's happening in Boston is 
         19   the tale of two cities:  people of affluence and 
         20   people that are poor.  The working class is very 
         21   fragile in this city.  They can't find housing, and 
         22   we need affordable home ownership for working class 
         23   families and for the lower middle class.  So that is 
         24   my focus and my plea. 
         25            I will say that we had hoped that one plus 
          1   one would equal more than two, but I'm sure you have 
          2   seen Brian Mooney's column in the Boston newspaper 
          3   of record, the Globe, on Saturday which iterates the 
          4   number of banks that have been subsumed by other 
          5   banks and are now Fleet.  There are 450 former 
          6   independent banks that are now Fleet. So maybe 
          7   instead of saying one plus one should equal more 
          8   than two, we should say 451 plus one should equal 
          9   more than two. 
         10            I think we need several things.  We need 
         11   mortgage lending that allows families to stay in 
         12   their own neighborhoods and to invest in their 
         13   neighborhood.  We need home equity lending programs 
         14   which help ensure that the family homestead can be 
         15   passed on to the next generation.  We need small 
         16   business lending that ensures that neighborhoods can 
         17   sustain their local infrastructure, while local 
         18   entrepreneurs are encouraged to continue investing 
         19   their own blood, sweat and tears in their 
         20   communities. 
         21            And we also need a banking presence in 
         22   which bank employees look like the people in our 
         23   neighborhoods and are hired from our neighborhoods 
         24   with a helping hand in the area of training and 
         25   education. 
          1            We are very concerned about this proposed 
          2   merger, and we very much insist that there be an 
          3   agreement which is verifiable and accountable, and I 
          4   think it's the responsibility of the Federal Reserve 
          5   Bank -- who else can do it -- to ensure that this is 
          6   a written agreement on the offers that Fleet-Boston 
          7   is making, and obviously it has to be signed.  I 
          8   mean, no agreement is an agreement unless it is 
          9   signed.  If I go into Fleet and get a loan and I 
         10   have to pay back $150 a month or something, 
         11   obviously I can't get away with a local agreement, 
         12   with an oral agreement. 
         13            So Fleet-Boston should sign a signed 
         14   agreement overseen by the Feds, because we must turn 
         15   to you for any of the benefits that we'll receive.  
         16   Thank you. 
         17            HEARING OFFICER SMITH:  Thank you very 
         18   much.
         19            Mr. Harris. 
         20            MR. HARRIS:  My name is David Harris, and 
         21   I'm the Executive Director of the Fair Housing 
         22   Center of Greater Boston, an organization promoting 
         23   equal housing opportunities for all people 
         24   throughout the Greater Boston metropolitan region. 
         25            I have spent much of the last two days 
          1   trying to edit my testimony down to five minutes.  
          2   This morning as I sat gasping for air after reducing 
          3   my comments to seven minutes, I realized that every 
          4   second I saved cost substance.  I was reminded of a 
          5   joke I used to tell students to loosen them up 
          6   before administering exams.  A proctor notices a 
          7   student has sat statue still for two and a half 
          8   hours of a three-hour exam on the tradition of 
          9   rhetoric.  When she warned the student that time was 
         10   wasting, the student protested that he had studied 
         11   for two weeks and reduced the article into a single 
         12   word.  "And now I've forgotten the word," cried this 
         13   beleaguered fellow.  "That's bull," intoned the 
         14   proctor.  "That's the word," exclaimed the student. 
         15            This is how it feels to peal away substance 
         16   and come before you with abbreviated arguments.  
         17   After reading the articles in today's Globe, I 
         18   realized I should save my breath.  The real battle 
         19   took place in the editorial room to which I do not 
         20   have access and which bank representatives surely 
         21   had more than five minutes to make their case.  So 
         22   I've submitted a copy of my expanded version 
         23   writings, and I offer here only a few highlights and 
         24   comments on process. 
         25            I must say, as I looked at you all, I 
          1   thought of another comment from a professor of mine 
          2   who used to say that he attended a union meeting at 
          3   which a speaker stood up and said, "Ladies and 
          4   gentlemen, the last speaker spoke to you in vague 
          5   generalities.  I, however, am going to speak to you 
          6   at random."  You must feel a bit of that coming on, 
          7   and I hope that I'm a little bit more focused than 
          8   that. 
          9            I should begin by saying that many of the 
         10   comments that you heard today touch on fair housing 
         11   issues, from affordable housing to mortgage lending, 
         12   from diversity of the work force to the location of 
         13   branches.  The Fair Housing Center agrees with those 
         14   who have come before you to ask the Federal Reserve 
         15   Bank to closely scrutinize the banks' stated 
         16   commitment to community. 
         17            The Fair Housing Center is among a hundred 
         18   plus community groups with whom the banks have 
         19   proudly boasted meeting.  We had to request that 
         20   meeting, and while the tone was cordial and 
         21   discussion open, we were distressed by the 
         22   suggestion that we return at the end of the year to 
         23   explore fair housing issues after the merger is 
         24   complete and the new entity is consolidated. 
         25            Given the history of housing discrimination 
          1   in this country and Fleet's chapter in that history, 
          2   a firm public and detailed commitment to fair 
          3   housing must precede and not following a merger. 
          4            The practice of effective fair housing is 
          5   or certainly should be a basic element of good 
          6   banking, basic but not simple.  The practice 
          7   requires lasting institutional commitment driven by 
          8   an honest and ongoing self criticism.  Effective 
          9   practice does not occur in isolation but is by 
         10   nature cooperative and open.  It depends upon 
         11   developing and maintaining internal mechanisms, as 
         12   well as partnerships with external organizations 
         13   across institutional lines. 
         14            Of course creating these partnerships 
         15   requires a basic element sorely missing from the 
         16   proposal that you are considering:  Trust.  Fair 
         17   housing involves more than the widely acknowledged 
         18   commitment to LMI consumers and neighborhoods, and 
         19   the scope of the Fair Housing Center's mission 
         20   extends throughout the 150 plus cities and towns 
         21   which comprise our service area. 
         22            The Federal Reserve Bank must also look 
         23   beyond the CRA horizon and condition any approval on 
         24   specific commitments to fair housing in the broader 
         25   community as well.  A step toward creating that 
          1   trust and ensuring that any approved bank practices 
          2   effective fair lending, the Federal Reserve Bank 
          3   should require two specific commitments. 
          4            The first is a comprehensive review of the 
          5   two banks' policies, practices and procedures to 
          6   identify possible impediments to fair housing.  The 
          7   review should be conducted by internal and external 
          8   analysts and cover impediments within the lender's 
          9   control as well as more general impediments in the 
         10   market.  The results of this review should be made 
         11   public. 
         12            Second, the Federal Reserve Bank should 
         13   require the new entity to translate that review by 
         14   specified date within the first year of operation  
         15   into a detailed plan of action to increase lending 
         16   to persons of color and other protected classes 
         17   throughout the region, rather than merely within LMI 
         18   census tracts. 
         19            This plan will include quantifiable, 
         20   verifiable, short-term and long-term objectives -- 
         21   well, I'm sorry.  Roger and I have the same proposal 
         22   here, so I won't -- in deference to the one minute I 
         23   won't go on, and it is in my comments. 
         24            Those of us who come here today have done 
         25   so in good faith.  Our efforts may be characterized
          1   variably as begging, extortion or mau-mauing, 
          2   depending upon the sympathy or the temerity of the 
          3   critic.  But by refusing to enter into enforceable 
          4   commitments prior to approval, it is the banks who 
          5   come to you with their hands out.  They come, one of 
          6   them burdened by a history of questionable practices 
          7   and commitment to fair lending, asking for a free 
          8   ride. 
          9            We're not talking about the $14.6 billion, 
         10   but about formal commitments to certain practices.  
         11   They refuse to make such commitments and indulge 
         12   today's spectacle with the arrogant self assurance 
         13   that you will punch their ticket. 
         14            The Fair Housing Center believes increased 
         15   size and power must be accompanied by increased 
         16   responsibility and accountability.  We call upon the 
         17   Federal Reserve Bank to consider the type of 
         18   corporate citizen it may be creating by endorsing 
         19   the proposed merger.  Such an entity must accept the 
         20   leadership role in the area of fair housing and fair 
         21   lending.  It must be expected to do more than its 
         22   former constituent parts and more than its smaller 
         23   competitors.  It must set the pace for others with 
         24   fewer resources and less influence in affirmatively 
         25   furthering fair housing. 
          1            There's an old saying in the Civil Rights 
          2   movement that freedom is not free.  It is a lesson 
          3   with which we conduct ourselves, knowing that stands 
          4   we take may be ridiculed and eventually dismissed by 
          5   those preoccupied by what they consider the bottom 
          6   line. 
          7            But these banks and any new bank must 
          8   realize that there is a cost to discrimination, not 
          9   only diminished lives of victims and the community 
         10   as a whole, but to those who discriminate as well; 
         11   in other words, a cost to the banks themselves. 
         12            The Fair Housing Center will be watching 
         13   and where indicated investigating.  But we also 
         14   stand ready to participate as full partners in the 
         15   quest to eliminate the practice and effect of 
         16   discrimination in the housing market.  Thank you.
         17            HEARING OFFICER SMITH:  Thank you very 
         18   much. 
         19            Reverend Barnwell.
         20            REVEREND BARNWELL:  I'm William Barnwell, 
         21   representing the Greater Boston Interfaith 
         22   Organization, also a resident, like Pat Cusick, of 
         23   the South End and Boston. 
         24            Greater Boston Interfaith Organization, 
         25   GBIO, is a large and active social reform 
          1   organization consisting of about 75 faith 
          2   communities, ten community development corporations, 
          3   and five other community groups across race, class, 
          4   denomination, and geographic lines.  Over 4,000 
          5   people attended our founding assembly last November, 
          6   the first of its kind in many, many years in Boston. 
          7            I'm here today to represent that 
          8   organization, which has made affordable housing, 
          9   especially for low-income people, its top priority. 
         10   After many small group meetings, my church, Trinity 
         11   Episcopal Church in Copley Square in Boston, decided 
         12   to make affordable housing our top outreach concern 
         13   as well. 
         14            We at GBIO and at Trinity Church believe 
         15   that if we are not able to make housing available to 
         16   all of our citizens, we will rather quickly become a 
         17   one-class city, forcing most of our church members 
         18   and other low- to moderate-income people into the 
         19   distant suburbs.  Not only would that make life 
         20   extremely difficult for them, for those persons, 
         21   destroying their present communities, it would also 
         22   have the effect of greatly diminishing the diversity 
         23   of the city that we cherish so much. 
         24            Specifically, GBIO urges that you approve 
         25   the merger only if these six conditions are met:  
          1   One, as a lot of others have said, that you require 
          2   a detailed written and signed reinvestment 
          3   agreement.  The idea that such an agreement not be 
          4   written out in detail and signed is unthinkable to 
          5   us and we believe should be unthinkable to banks 
          6   that rely entirely on signed agreements with their 
          7   customers. 
          8            Two, that the merger result in at least the 
          9   same amount of benefits to low income areas that 
         10   both banks have offered before the merger. 
         11            Three, that Fleet Bank convert its 
         12   obligation for a loan pool to the Massachusetts 
         13   Housing Partnership into an affordable housing 
         14   grant, that is, equity conversion.  Here Fleet would 
         15   be following the model of the Bank of Boston when 
         16   they merged with BayBank.  By our calculations, $30 
         17   to $60 million would be available for affordable 
         18   housing grants.  This, we believe, would help many 
         19   more low- to moderate-income families buy their 
         20   homes or rent than a small reduction in interest 
         21   payments would allow. 
         22            Four, that Fleet Bank and BankBoston meet 
         23   their commitments to the soft second mortgage 
         24   programs that they made to the community on May 12th 
         25   at Roxbury Community College. 
          1            Five, that the new bank extend the soft 
          2   second mortgages to other parts of the Commonwealth. 
          3            Six, that low- to moderate-income 
          4   neighborhoods continue to have nearby branches of 
          5   the new bank and that none be closed or sold unless 
          6   two of the old bank branches are in the same 
          7   immediate neighborhood.  Thank you very much. 
          8            HEARING OFFICER SMITH:  Mr. Bolling. 
          9            MR. BOLLING:  My name is Bruce Bolling.  I 
         10   am the Executive Director of the Massachusetts 
         11   Alliance for Small Contractors.  I am a lifelong 
         12   resident of the Boston and Roxbury community.  I 
         13   served on the City Council and was President of the 
         14   City Council.  I served on the body for 12 years and 
         15   have been involved in business development, economic 
         16   development, particularly for small minority and 
         17   women business enterprises for quite some time. 
         18            The Massachusetts Alliance for Small 
         19   Contractors is a nonprofit corporation that provides 
         20   business development, capacity building services to 
         21   small minority and women-owned business enterprises.  
         22   Mass Alliance helps M/WBEs to acquire the financial 
         23   resources, the technical capabilities, and 
         24   management skills needed to successfully compete for 
         25   projects in the construction industry, including 
          1   bonding approval, creditworthiness, management and 
          2   accounting systems, technical expertise, estimating 
          3   capacity, project experience. 
          4            We address these needs in businesses 
          5   through two programs:  Our Business Development 
          6   Support Services Program, our Educational and 
          7   Training program. 
          8            The Business Development Support Services 
          9   Program provides technical assistance and support to 
         10   M/WBEs through one-on-one management and technical 
         11   consulting services.  We also assist M/WBEs with the 
         12   financing, tax and insurance issues many contractors 
         13   face while managing the growth of their companies.  
         14   These services are provided by construction 
         15   contracting industry experts, including engineers, 
         16   estimators, project managers, lawyers and 
         17   accountants. 
         18            The various services that we provide, thus 
         19   far over 350 companies have benefited directly from 
         20   one or more of MassAlliance's wide range of 
         21   technical assistance and capacity-building services. 
         22            Our Education and Training component has 
         23   served many people in construction management areas.  
         24   We have provided educational training services to 
         25   1,753 participants representing 490 companies. 
          1            MassAlliance engaged in a financial 
          2   analysis of the clients that we provide services to.  
          3   That financial analysis was based on our ability to 
          4   provide programs and tailor programs specifically to 
          5   meet the needs of minority and women construction 
          6   contractors.  The objective of that profile was to 
          7   profile the financial position of companies actively 
          8   receiving services from MassAlliance to determine 
          9   trends, common characteristics, strong and weak 
         10   points.  The findings will allow us to maximize the 
         11   delivery of various programs offered to -- and to 
         12   assist in the design of new programs. 
         13            One of the major findings of that study, 
         14   the main financial obstacle that small contractors 
         15   are experiencing is undercapitalization, resulting 
         16   in high leverage ratios and lack of liquidity. 
         17            The more than 50 percent of the 
         18   participants in our study in fact are rated worse 
         19   than the industry.  And to understand some of the 
         20   reasons causing this situation, we should start with 
         21   the high percentage of companies having very low 
         22   days of cash. 
         23            What we have been able to determine is 
         24   that, when you do a comparison of accounts 
         25   receivable balances compared to sales and accounts 
          1   payable balances as compared to cost of goods sold, 
          2   the hidden factor in the accounts receivable numbers 
          3   is that the retainage is 5 percent.  5 percent of 
          4   the contract is withheld until the end of the 
          5   contract.  Many contractors start early, which means 
          6   that they in fact can't get the retainage until a 
          7   year or two years after the project has been 
          8   completed. 
          9            The adverse impact of that is significant 
         10   to this constituency.  What is needed is equity 
         11   financing, access to capital in ways that 
         12   traditional financing programs don't commit to.  
         13   Most of these companies have very low leverages.  
         14   It's a mature industry.  The profit margins usually 
         15   range from 2 to 5 percent, and it is very difficult 
         16   for these companies to access capital. 
         17            My concern with this merger is that what I 
         18   would like to see for this constituency, and for 
         19   that matter small businesses, is the ability to 
         20   access capital based on the real growth needs that 
         21   these companies have.  At present, financial 
         22   institutions, major financial institutions simply 
         23   are not doing it. 
         24            This is a time where the economic expansion 
         25   should lend itself to innovative, creative 
          1   approaches to accessing capital.  It is not 
          2   happening for this constituency.  Just in 
          3   Massachusetts, $3 billion a year in construction 
          4   publicly financed for the next five years, for the 
          5   next five years.  These small businesses are having 
          6   a difficult time trying to take advantage of those 
          7   construction opportunities. 
          8            This merger, if it doesn't address this 
          9   constituency and other small business 
         10   constituencies, they will be marginalized forever, 
         11   and that has been the problem to date. 
         12            This is an area where major financial 
         13   institutions have shied away from, and it is 
         14   something that needs to be done if we're going to 
         15   bridge this gap to ensure that small businesses in 
         16   fact get the kind of capital they need in order to 
         17   stabilize and grow their businesses like anyone 
         18   else. 
         19            HEARING OFFICER SMITH:  Questions? (No 
         20   response)
         21            We are going to have a one-person panel so 
         22   that Mr. Porter can catch his flight at 10 o'clock.

Last update: December 3, 2010