B-217893, FEB 7, 1986

B-217893: Feb 7, 1986

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THE HOUSING AND URBAN DEVELOPMENT (HUD) DEPARTMENTS' AMENDMENT TO THE INITIAL UDAG AGREEMENT DID NOT PREVENT A "RELOCATION" SO AS TO RENDER UNNECESSARY A DETERMINATION BY THE SECRETARY OF HUD THAT THE "RELOCATION" DOES NOT SIGNIFICANTLY AND ADVERSELY AFFECT THE UNEMPLOYMENT OR ECONOMIC BASE OF THE AREA FROM WHERE THE PLANT IS RELOCATING. SECTION 119(H) PROHIBITS UDAG ASSISTANCE FOR PROJECTS INTENDED TO FACILITATE THE RELOCATION OF COMMERCIAL PLANTS FROM ONE AREA TO ANOTHER UNLESS THE SECRETARY OF HUD FINDS THAT THE RELOCATION DOES NOT SIGNIFICANTLY AND ADVERSELY AFFECT THE UNEMPLOYMENT OR ECONOMIC BASE OF THE AREA FROM WHERE THE COMMERCIAL PLANT IS TO BE RELOCATED. THIS UDAG WAS PURPORTEDLY USED AT LEAST IN PART TO ASSIST THE AMERICAN HOIST AND DERRICK COMPANY (AMHOIST) TO RELOCATE ITS ST.

B-217893, FEB 7, 1986

HOUSING AND URBAN DEVELOPMENT DEPARTMENT - HOUSING AND COMMUNITY DEVELOPMENT ACT - ALLOCATION OF FUNDS DIGEST: URBAN DEVELOPMENT ACTION GRANT (UDAG) TO THE CITY OF WILMINGTON, NORTH CAROLINA, RESULTED IN A "RELOCATION" OF A COMMERCIAL PLANT WITHIN THE CONTEMPLATION OF SECTION 119(H) OF THE HOUSING AND URBAN DEVELOPMENT ACT OF 1974, AS AMENDED. 42 U.S.C. SEC. 5318(H) (1982). THE HOUSING AND URBAN DEVELOPMENT (HUD) DEPARTMENTS' AMENDMENT TO THE INITIAL UDAG AGREEMENT DID NOT PREVENT A "RELOCATION" SO AS TO RENDER UNNECESSARY A DETERMINATION BY THE SECRETARY OF HUD THAT THE "RELOCATION" DOES NOT SIGNIFICANTLY AND ADVERSELY AFFECT THE UNEMPLOYMENT OR ECONOMIC BASE OF THE AREA FROM WHERE THE PLANT IS RELOCATING. SUBJECT: RELOCATION OF AMHOIST CRANE OPERATIONS TO WILMINGTON, NORTH CAROLINA (FILE B-217893; CODE 977353)

DIRECTOR, RCED - J. DEXTER PEACH:

RELOCATION OF AMHOIST CRANE OPERATIONS TO WILMINGTON, NORTH CAROLINA (FILE B-217893; CODE 977353)

INCIDENT TO YOUR AUDIT OF THE HOUSING AND URBAN DEVELOPMENT (HUD) DEPARTMENT'S $4,000,000 URBAN DEVELOPMENT ACTION GRANT (UDAG) TO WILMINGTON, NORTH CAROLINA, YOUR STAFF ASKED WHETHER THIS PROJECT RESULTED IN A "RELOCATION" WITHIN THE MEANING OF SECTION 119(H) OF THE HOUSING AND COMMUNITY DEVELOPMENT ACT OF 1974, AS AMENDED. 42 U.S.C. SEC. 5318(H) (1982). SECTION 119(H) PROHIBITS UDAG ASSISTANCE FOR PROJECTS INTENDED TO FACILITATE THE RELOCATION OF COMMERCIAL PLANTS FROM ONE AREA TO ANOTHER UNLESS THE SECRETARY OF HUD FINDS THAT THE RELOCATION DOES NOT SIGNIFICANTLY AND ADVERSELY AFFECT THE UNEMPLOYMENT OR ECONOMIC BASE OF THE AREA FROM WHERE THE COMMERCIAL PLANT IS TO BE RELOCATED. THIS UDAG WAS PURPORTEDLY USED AT LEAST IN PART TO ASSIST THE AMERICAN HOIST AND DERRICK COMPANY (AMHOIST) TO RELOCATE ITS ST. PAUL, MINNESOTA, CRANE MANUFACTURING OPERATIONS TO THE CITY OF WILMINGTON.

AS DISCUSSED IN DETAIL IN THE ATTACHMENT, WE CONCLUDE THAT THIS UDAG FACILITATED THE "RELOCATION" OF AMHOIST'S ST. PAUL CRANE MANUFACTURING OPERATIONS TO WILMINGTON. FURTHERMORE, WE DO NOT BELIEVE THAT HUD'S AMENDMENT TO THE ORIGINAL UDAG GRANT IN APRIL OF 1985, WHICH WAS APPARENTLY DESIGNED TO PREVENT A RELOCATION, ACCOMPLISHED ITS PURPOSE. VIEW OF THE ABOVE, UNLESS THE SECRETARY DETERMINES THAT THE RELOCATION DID NOT SIGNIFICANTLY AND ADVERSELY AFFECT THE UNEMPLOYMENT OR ECONOMIC BASE OF ST. PAUL, OR TAKES OTHER ACTIONS TO BRING THE GRANT INTO COMPLIANCE, WE THINK THE UDAG TO WILMINGTON DID NOT COMPLY WITH THE LIMITATION OF SECTION 119(H).

I. BACKGROUND

SECTION 119 OF THE HOUSING AND COMMUNITY DEVELOPMENT ACT OF 1974 (THE ACT), 42 U.S.C. SEC. 5318, /1/ AUTHORIZES THE SECRETARY OF HOUSING AND URBAN DEVELOPMENT TO MAKE URBAN DEVELOPMENT ACTION GRANTS (UDAG) TO CITIES AND URBAN COUNTIES EXPERIENCING SEVERE ECONOMIC DISTRESS. THE PURPOSE OF THE UDAG PROGRAM IS TO STIMULATE ECONOMIC DEVELOPMENT ACTIVITIES NECESSARY TO FURTHER THE ECONOMIC RECOVERY OF DISTRESSED CITIES OR URBAN COUNTIES. 42 U.S.V. SEC. 5318(A) (1982). WHILE THE SECRETARY HAS BROAD DISCRETION TO DETERMINE WHICH PROJECTS SHOULD RECEIVE FUNDING, CONGRESS LIMITED THE SECRETARY'S DISCRETION IN SEVERAL RESPECTS. FOR PURPOSES OF THIS MEMORANDUM, THE RELEVANT LIMITATION IS FOUND IN SECTION 119(H) OF THE ACT:

"NO ASSISTANCE MAY BE PROVIDED UNDER THIS SECTION FOR PROJECTS INTENDED TO FACILITATE THE RELOCATION OF INDUSTRIAL OR COMMERCIAL PLANTS OR FACILITIES FROM ONE SITE TO ANOTHER, UNLESS THE SECRETARY FINDS THAT THE RELOCATION DOES NOT SIGNIFICANTLY AND ADVERSELY AFFECT THE UNEMPLOYMENT OR ECONOMIC BASE OF THE AREA FROM WHICH THE INDUSTRIAL OR COMMERCIAL PLANT OR FACILITY IS TO BE RELOCATED." 42 U.S.C. SEC. 5318(H) (1982).

HUD REGULATIONS MIRROR THE STATUTORY LANGUAGE (THE REGULATIONS ALSO INTERPRET THE STATUTE TO PERMIT RELOCATIONS WITHIN A METROPOLITAN AREA.) 24 C.F.R. SEC. 570.456(C) (1985).

THE CONFERENCE REPORT IS SILENT ON CONGRESSIONAL EXPECTATIONS REGARDING SECTION 119(H), BUT THE HOUSE REPORT STATES WITH RESPECT TO SECTION 119(H):

"THE COMMITTEE RECOGNIZES THAT STIMULATION OF PRIVATE INVESTMENT BY ONE JURISDICTION IN A METROPOLITAN AREA MAY IN SOME INSTANCES RESULT IN THE LOSS OF COMMERCIAL OR EMPLOYMENT ACTIVITY IN ANOTHER. THE DISADVANTAGED COMMUNITY MAY IN FACT BE THE ONE LEAST CAPABLE OF RETAINING ITS ECONOMIC BASE AND BE MOST IN NEED OF ECONOMIC DEVELOPMENT. THEREFORE, THE COMMITTEE HAS ADDED THE LANGUAGE TO THE URBAN DEVELOPMENT ACTION GRANT PROGRAM WHICH REQUIRES A SECRETARY FINDING THAT THE RELOCATION OF EMPLOYMENT OPPORTUNITY FROM ONE AREA TO ANOTHER WILL NOT SIGNIFICANTLY AND ADVERSELY AFFECT THE ECONOMIC BASE OF THE FIRST AREA." H.R. REPORT NO. 236, 95TH CONG., 1ST SESS. 9 (1977).

CONGRESSMAN VENTO-- IN HIS LETTER OF FEBRUARY 22, 1985, SEEKING GAO'S ASSISTANCE-- STATES THAT HUD'S AWARD OF A UDAG TO WILMINGTON, NORTH CAROLINA, WILL RESULT IN A "RELOCATION" OF THE AMHOIST COMPANY'S CRANE MANUFACTURING OPERATIONS FROM ST. PAUL, MINNESOTA, TO WILMINGTON. CONGRESSMAN VENTO BELIEVES THE AWARD OF THE UDAG VIOLATES THE SECTION 119(H) RELOCATION PROVISION OF THE ACT BECAUSE THE GRANT FACILITATES THE RELOCATION OF CRANE PRODUCTION IN THE ST. PAUL PLANT TO WILMINGTON, AND BECAUSE OF A SUBSTANTIAL LOSS OF CRANE PRODUCTION JOBS WILL OCCUR IN ST. PAUL.

ON JULY 31, 1984, HUD RECEIVED A UDAG APPLICATION FROM THE CITY OF WILMINGTON TO PARTIALLY FINANCE AMHOIST'S PURCHASE AND RENOVATION OF A VACANT INDUSTRIAL PLANT IN WILMINGTON AND THE ACQUISITION AND INSTALLATION OF EQUIPMENT AT THE PROJECT SITE. THE WILMINGTON UDAG APPLICATION STATES THAT THE NEW FACILITY WAS SOUGHT BECAUSE, DUE TO MARKET REQUIREMENTS, AMHOIST WAS "EXPANDING ITS MANUFACTURING CAPACITY" TO HANDLE EXTREMELY LARGE CRANES AND THE NEW FACILITY MEETS "MANY OF (AMHOIST'S) BASIC MANUFACTURING PROCESS NEEDS." NEW JOBS TO BE CREATED AS A RESULT OF THE PROJECT WERE ESTIMATED AT 700 AND THE BOOK VALUE OF EQUIPMENT TO BE TRANSFERRED (PRIMARILY FROM ST. PAUL TO WILMINGTON) WAS ESTIMATED TO BE $6,000,000. THE APPLICATION ALSO REPRESENTED THAT THE PROJECT WOULD NOT RESULT IN A RELOCATION OF INDUSTRIAL OR COMMERCIAL FACILITIES FROM ONE AREA TO ANOTHER.

HUD'S SEPTEMBER 1984 REVIEW OF THE UDAG APPLICATION REVEALED THAT AMHOIST PROJECTED TRANSFERRING APPROXIMATELY 25 ST. PAUL SUPERVISORY EMPLOYEES TO WILMINGTON TO ASSIST IN STARTING UP THE NEW FACILITY. HUD WAS INFORMED BY CONGRESSMAN VENTO'S OFFICE THAT AMHOIST'S MID-SIZED CRANE OPERATIONS IN ST. PAUL MIGHT BE CLOSED IN THE NEAR FUTURE, RESULTING IN LARGE SCALE LAYOFFS. AS A RESULT OF THE FORMAL REVIEW PROCEDURES, HUD DETERMINED THAT:(1) THE TRANSFER OF 25 EMPLOYEES CONSTITUTED A "RELOCATION" UNDER SECTION 119(H) BUT THAT NO SIGNIFICANT OR ADVERSE AFFECT TO ST. PAUL'S UNEMPLOYMENT OR ECONOMIC BASE WOULD OCCUR; (2) THE PRODUCT TO BE MANUFACTURED IN WILMINGTON (LARGE SIZE CRANES) WAS QUALITATIVELY DISTINCT FROM THE PRODUCT (MID-SIZED CRANES) PRODUCED IN AMHOIST'S ST. PAUL PLANT; AND (3) A RELOCATION WITHIN THE PURVIEW OF SECTION 119(H) WOULD NOT OCCUR AS A RESULT OF AMHOIST'S MOVEMENT OF EQUIPMENT OR ITS POTENTIAL LAYOFF OF ST. PAUL MID-SIZED CRANE MANUFACTURING EMPLOYEES. /2/

ON NOVEMBER 7, 1984, HUD NOTIFIED THAT MAYOR OF WILMINGTON THAT A $4,000,000 UDAG HAD BEEN APPROVED FOR THE AMHOIST PROJECT. A GRANT AGREEMENT WAS EXECUTED ON NOVEMBER 7, 1984, BUT DRAWDOWN OF THE UDAG FUNDS WAS NOT AUTHORIZED UNTIL HUD RECEIVED WRITTEN ACKNOWLEDGMENT FROM WILMINGTON THAT ALL REQUISITE DOCUMENTS FOR THE GRANT HAD BEEN RECEIVED. SEE, E.G., 24 C.F.R. SEC. 570.461(B) (1985). ON FEBRUARY 14, 1985, WILMINGTON AGREED TO LOAN AMHOIST $4,000,000 IN UDAG FUNDS.

MEANWHILE, DUE AT LEAST IN PART TO MEDIA REPORTS OF AMHOIST'S INTENTION TO PERMANENTLY CLOSE ITS MID-SIZED CRANE MANUFACTURING OPERATIONS AND LAY OFF 500 ST. PAUL WORKERS, AND ALSO IN RESPONSE TO CONGRESSIONAL CONCERN THAT THESE OPERATIONS WOULD BE RELOCATED TO WILMINGTON, HUD, ON FEBRUARY 11, 1985, REQUESTED AMHOIST TO REAFFIRM ITS COMPLIANCE WITH SECTION 119(H) OF THE ACT. ON FEBRUARY 22, AMHOIST REPLIED THAT ITS BOARD OF DIRECTORS HAD DECIDED IN JULY, 1984-- AT THE SAME TIME WILMINGTON SUBMITTED THE UDAG APPLICATION-- TO CLOSE THE ST. PAUL FACILITY AND TO CONSOLIDATE CRANE MANUFACTURING OPERATIONS INTO A MULTI-PURPOSE PLANT CAPABLE OF MANUFACTURING ANY PRODUCTS NEEDED BECAUSE OF CHANGING MARKET DEMAND.

AMHOIST'S LETTER ALSO STATED THAT THE EMPLOYEES INVOLVED IN THE MANUFACTURE OF TRADITIONAL ST. PAUL CRANES WOULD BE LAID OFF BUT THAT 75 PERCENT OF PERSONS EMPLOYED BY AMHOIST IN "TRADITIONAL CRANE JOBS" WOULD BE RETAINED IN ST. PAUL. /3/ ACCORDING TO AMHOIST, PRODUCTION OF PENDING OR NEW ORDERS FOR TRADITIONAL ST. PAUL CRANES NOT COMPLETED PRIOR TO THE CLOSING OF THE ST. PAUL PLANT WOULD BE SUBCONTRACTED OVERSEAS OR, IF "IT SHOULD BECOME IMPOSSIBLE FOR US TO MANUFACTURE SUCH CRANES IN WILMINGTON," IN A DOMESTIC PLANT OTHER THAN WILMINGTON. BASED ON THE ABOVE, HUD CONCLUDED THAT AMHOIST PLANNED TO SHIFT TO WILMINGTON ANY CURRENT OR FUTURE ORDERS FOR TRADITIONAL ST. PAUL PRODUCTS THAT COULD NOT BE COMPLETED AT ST. PAUL PRIOR TO ITS CLOSING.

ON APRIL 17, 1985, HUD TRANSMITTED TO THE CITY OF WILMINGTON FOR SIGNATURE AN AMENDMENT TO THE UDAG GRANT AGREEMENT. THE AMENDMENT WAS THE CULMINATION OF MEETINGS AMONG HUD, WILMINGTON, AND AMHOIST OFFICIALS CONCERNING THE APPLICABILITY OF SECTION 119(H) TO THE MANUFACTURE OF TRADITIONAL ST. PAUL PRODUCTS AT AMHOIST'S UDAG SITE IN NORTH CAROLINA. THE AMENDMENT PROHIBITED AMHOIST, DURING THE LIFE OF THE UDAG LOAN, FROM ASSEMBLING OR PREPARING FOR SHIPMENT AT THE WILMINGTON PROJECT SITE CERTAIN CRANE MODELS ENUMERATED IN THE AMENDING DOCUMENT WHICH WERE TRADITIONALLY ASSEMBLED IN ST. PAUL.

AMHOIST INITIALLY REFUSED TO AGREE TO THE AMENDMENT ON GROUNDS THAT HUD HAD EXPLORED THE RELOCATION QUESTION PRIOR TO APPROVING THE UDAG AND THAT AMHOIST HAD JUSTIFIABLY RELIED ON HUD'S EARLIER DETERMINATION. AMHOIST AGREED TO THE AMENDMENT HOWEVER, APPARENTLY TO OBTAIN AUTHORITY TO DRAW DOWN THE UDAG FUNDS, WHICH IT HAD NOT YET RECEIVED. SUBSEQUENTLY, AMHOIST LEASED FACILITIES (HEREINAFTER CALLED "WILMINGTON NORTH"), APPROXIMATELY FIVE MILES FROM THE WILMINGTON PROJECT, WHERE THE CRANES LISTED IN THE AMENDMENT COULD BE ASSEMBLED AND PREPARED FOR SHIPMENT.

AS OF AUGUST 2, 1985, AMHOIST INDICATES THAT COMPONENTS OF FOUR CRANES OF THE KIND ENUMERATED IN THE AMENDMENT HAD BEEN MANUFACTURED AT WILMINGTON AND THEN TRANSPORTED TO WILMINGTON NORTH FOR ASSEMBLY AND PREPARATION FOR SHIPMENT. AMHOIST HAS ALSO SCHEDULED FOR PRODUCTION AT ITS WILMINGTON SITE THREE OTHER CRANES LISTED IN THE GRANT AMENDMENT, EACH OF WHICH AMHOIST INTENDS TO ASSEMBLE AND PREPARE FOR SHIPMENT AT THE WILMINGTON NORTH LOCATION. AMHOIST OFFICIALS INDICATE THAT IT IS THEIR INTENTION TO CONTINUE PRODUCING CRANES COVERED BY THE GRANT AMENDMENT AT THE WILMINGTON PROJECT SITE IF THEY GET ORDERS FOR SUCH CRANES.

II. HUD'S INTERPRETATION OF 119(H)

WHILE SECTION 119(H) GENERALLY PROHIBITS UDAG ASSISTANCE FOR PROJECTS INVOLVING THE RELOCATION OF "PLANTS OR FACILITIES", HUD'S VIEW IS THAT A RELOCATION DOES NOT OCCUR BY THE MERE PHYSICAL TRANSFER OF A PLANT OR EQUIPMENT FROM ONE AREA TO ANOTHER. INSTEAD, HUD BELIEVES THE FOCUS OF SECTION 119(H) IS THE "OPERATIONS CONDUCTED IN A PLANT OR FACILITY, NOT ITS PHYSICAL STRUCTURE OR PHYSICAL EQUIPMENT." /4/ UNDER HUD'S VIEW, THE KEY QUESTION IS WHETHER THE UDAG RECIPIENT'S ONGOING OPERATIONS ARE THE SUBJECT OF A RELOCATION TO THE PROJECT SITE. /5/ IF THE OPERATIONS CONDUCTED IN THE CITY FROM WHICH AN ENTERPRISE IS TRANSFERRING ARE NOT THE OPERATIONS CONDUCTED IN THE CITY INTO WHICH IT IS MOVING, A RELOCATION DOES NOT OCCUR. /6/ HUD STATES THAT IT PLACES "COMPLETE RELIANCE ON THE IDENTITY OF THE PRODUCT LINE" IN DETERMINING WHETHER THE OPERATIONS TO BE SHIFTED ARE IDENTICAL. /7/ HUD FURTHER ADVISES US THAT SECTION 119(H) IS NOT ACTIVATED "WHERE A PROJECT IS INTENDED TO MANUFACTURE DIFFERENT PRODUCTS (SUCH AS MOVEMENT INTO LARGE CRANE PRODUCTION IN LIEU OF MID-SIZE CRANE MANUFACTURE)" IN THE AREA TO WHICH THE OPERATIONS ARE TO BE TRANSFERRED. /8/ IN THIS CASE, HUD CONCLUDED THAT IF IT HAD "UNDERSTOOD THE AMHOIST PROPOSAL TO POSIT A TRANSFER TO WILMINGTON, OF ANY PART OF THE OPERATIONS CONDUCTED IN ST. PAUL AS PART OF THE NORMAL OPERATIONS OF THE ST. PAUL FACILITY, THEN (HUD WOULD HAVE REGARDED IT AS INVOLVING, TO THAT EXTENT, A RELOCATION." /9/

WHEN IT BECAME APPARENT, AFTER AMHOIST'S JANUARY 1985 ANNOUNCEMENT OF ITS CESSATION OF MID-SIZE CRANE MANUFACTURING OPERATIONS IN ST. PAUL, THAT AMHOIST PLANNED TO TRANSFER PRODUCTION OF FUTURE ORDERS OF TRADITIONAL ST. PAUL CRANES TO WILMINGTON, HUD DETERMINED THAT A "RELOCATION" WITHIN THE CONTEMPLATION OF SECTION 119(H) WOULD OCCUR OF AMHOIST "ASSEMBLED" ANY TRADITIONAL ST. PAUL PRODUCTS AT THE WILMINGTON PROJECT SITE. HUD TESTIFIED THAT ITS POLICY IS TO AVOID ADDRESSING THE QUESTION OF SIGNIFICANT AND ADVERSE EFFECT BY STRUCTURING EACH UDAG PROJECT IN SUCH A WAY AS TO PRECLUDE ANY POSSIBILITY OF A "RELOCATION". /10/ HUD THEREFORE REQUIRED AMHOIST, AS A CONDITION TO THE RELEASE OF UDAG FUNDS TO SIGN AN AMENDMENT TO THE GRANT AGREEMENT PROHIBITING AMHOIST FROM "ASSEMBLING" AT THE WILMINGTON PROJECT SITE CERTAIN CRANE MODELS "PREVIOUSLY ASSEMBLED AT AMHOIST'S ST. PAUL FACILITY AS PART OF THE NORMAL OPERATIONS OF THE ST. PAUL FACILITY." THE AMENDMENT ALSO PROHIBITED AMHOIST FROM "PREPARING THE ENUMERATED CRANES FOR SHIPMENT" AT THE WILMINGTON UDAG FACILITY.

IN RESPONSE TO OUR QUESTION CONCERNING WHY HUD'S AMENDED GRANT AGREEMENT LIMITED ONLY THE ASSEMBLY AND PREPARATION FOR SHIPMENT OF TRADITIONAL CRANE MODELS AT THE WILMINGTON PROJECT SITE, HUD INFORMED US THAT IT FOCUSED ON "ASSEMBLY" BECAUSE IT UNDERSTOOD THAT:

"THE PRINCIPAL OPERATION THAT WAS UNIQUE AND DISTINCTIVE TO ST. PAUL WAS THE ASSEMBLY OPERATION. THAT IS, THE OPERATIONS WHICH PRECEDED IT MACHINE SHOP, METAL CUTTING, FABRICATION OF LESSER COMPONENTS OF MAJOR SUB- ASSEMBLIES - DO NOT REQUIRE CUSTOM BUILT FACILITIES AND COULD BE, AND TO A LARGE EXTENT WERE, SUB-CONTRACTED TO VENDORS. AS YOU KNOW, EVEN THE LOWER MAJOR SUB-ASSEMBLY WAS, IN THE CASE OF SOME CRANES, MANUFACTURED IN ANOTHER AMHOIST FACILITY OR BY A CONTRACTOR. HOWEVER, THE ASSEMBLY OPERATION WAS IN ALL CASES, IN MY UNDERSTANDING, CONDUCTED IN ST. PAUL. CONCLUDED, THEREFORE, THAT THIS WAS THE ESSENTIAL, DISTINCTIVE OPERATION IDENTIFIED WITH THE ST. PAUL FACILITY THAT SHOULD NOT BE CONDUCTED IN WILMINGTON." /11/ III. THE AMHOIST POSITION

A "RELOCATION" HAS NOT OCCURRED IN AMHOIST'S VIEW. AMHOIST DID NOT DISCONTINUE MANUFACTURING MID-SIZE CRANES IN ST. PAUL BECAUSE OF THE UDAG LOAN. FURTHER, EVEN AFTER THE TERMINATION OF THE ST. PAUL CRANE MANUFACTURING OPERATIONS, APPROXIMATELY 75 PERCENT OF THE 763 CRANE RELATED JOBS TRADITIONALLY PERFORMED IN ST. PAUL REMAIN IN ST. PAUL. ALSO, ACCORDING TO AMHOIST, A CONTINUING SUBSTANTIAL CRANE DIVISION PRESENCE IN ST. PAUL PRECLUDES A FINDING OF A "RELOCATION" WITHIN THE CONTEMPLATION OF SECTION 119(H). /12/ FURTHER, EVEN IF AMHOIST'S ACTIONS CONSTITUTE A "RELOCATION" WITHIN THE STATUTORY DEFINITION, AMHOIST ASSERTS THAT THE EVIDENCE AVAILABLE TO HUD SHOWS THAT THE RELOCATION DOES NOT "SIGNIFICANTLY AND ADVERSELY AFFECT" THE UNEMPLOYMENT OR ECONOMIC BASE OF ST. PAUL. /13/ AMHOIST ARGUES THAT, BY AUTHORIZING THE UDAG WITHOUT QUALIFICATION IN NOVEMBER, 1984, HUD ESTABLISHED THE ECONOMIC BASIS IN RELIANCE UPON WHICH AMHOIST ACCEPTED THE LOAN OF THE GRANT FUNDS AND INCURRED ADDITIONAL FINANCIAL OBLIGATIONS. AMHOIST POINTS OUT THAT IT NEVER REACHED AGREEMENT WITH HUD REGARDING THE EXISTENCE OF A RELOCATION, NOR HAS HUD CONVEYED TO AMHOIST (AS OF AUGUST 2, 1985) ITS DEFINITION OF "RELOCATION" OF THE RESULT OF ITS FINDINGS.

AMHOIST INDICATES THAT IT AGREED TO THE APRIL 1985 AMENDMENT TO THE GRANT AGREEMENT BECAUSE OF ITS POOR FINANCIAL POSITION AND LACK OF NEGOTIATING STRENGTH WITH HUD. /14/ IN AMHOIST'S VIEW, THE AMENDMENT WAS A COMPROMISE DEVELOPED BY HUD AS A RESULT OF AMHOIST'S REFUSAL TO AGREE NOT TO MANUFACTURE IN WILMINGTON ANY PRODUCTS WHICH AMHOIST PREVIOUSLY PRODUCED IN ST. PAUL. AMHOIST INDICATES THAT AN AGREEMENT NOT TO OPERATE IN WILMINGTON AS IT HAD IN ST. PAUL WOULD HAVE RESULTED IN THE LOSS OF THE USE OF THE WILMINGTON FACILITY AS A MULTI-PURPOSE CONSOLIDATED CRANE MANUFACTURING PLANT. THUS, AFTER A SERIES OF DISCUSSIONS INVOLVING HUD AND AMHOIST OFFICIALS, HUD TRANSMITTED A GRANT AMENDMENT TO THE CITY OF WILMINGTON AND AMHOIST AGREED TO THE AMENDMENT.

AMHOIST BELIEVES THE GRANT AMENDMENT PROHIBITS THE COMPANY FROM CONDUCTING THE ASSEMBLY AND PREPARATION FOR SHIPMENT OPERATIONS AT THE WILMINGTON FACILITY THAT WERE PERFORMED AT THE ST. PAUL PLANT. TO COMPLY WITH THE AMENDMENT AMHOIST LEASED THE WILMINGTON NORTH SITE ABOUT FIVE MILES FROM THE WILMINGTON FACILITY TO ASSEMBLE AND PREPARE FOR SHIPMENT THE ENUMERATED CRANES. AMHOIST DESCRIBES THIS NON-UDAG ASSEMBLY FACILITY AS FOLLOWS:

"THE SITE (WILMINGTON NORTH) IS CROWDED, INEFFICIENT, HAS A DIRT FLOOR, NO RUNNING WATER OR HEATING SYSTEM, IS TEN MINUTES FROM THE PROJECT AND HAS NEGATED A LARGE PART OF THE EFFICIENCY SOUGHT IN A NEW MODERN, WELL LAID OUT FACILITY. WE ESTIMATE THAT ASSEMBLY AND PREPARATION FOR SHIPMENT OF A CRANE NORMALLY TAKES FOUR WEEKS BUT AT WILMINGTON NORTH IT TAKES AN ADDITIONAL SIX WEEKS. WE ESTIMATE OUR ADDITIONAL COST OF OPERATING WILMINGTON NORTH AT IN EXCESS OF $100,000 PER MONTH AFTER CONSIDERING RENTAL, TWENTY PERCENT EFFICIENCY COMPARED TO SEVENTY PERCENT EFFICIENCY AT THE PROJECT, A DEDICATED $750,000 CRANE WHICH MUST BE LEFT AT WILMINGTON NORTH AT ALL TIMES, AN ADDITIONAL SUPERVISOR AND AN ADDITIONAL PRODUCTION CONTROL MANAGER. THE AMENDMENT WAS A COMPROMISE THAT IMPOSES AN ENORMOUS HARDSHIP ON AMHOIST. WE HAVE INVITED HUD OFFICIALS TO VIEW BOTH THE PROJECT AND WILMINGTON NORTH." /15/

AMHOIST DISAGREES WITH HUD'S POSITION THAT ASSEMBLY WAS THE "ESSENTIAL, DISTINCTIVE" OPERATION AT THE ST. PAUL FACILITY AND WITH HUD'S OBSERVATION THAT THE MANUFACTURING OPERATIONS WHICH PRECEDED THAT ASSEMBLY OPERATION WERE "TO A LARGE EXTENT" SUBCONTRACTED. AMHOIST DESCRIBES ITS ST. PAUL MID-SIZE CRANE OPERATION AS AN INTEGRATED CRANE MANUFACTURING OPERATION INVOLVING PRIMARILY METAL CUTTING, MACHINING, FABRICATION, AND ASSEMBLY OF COMPONENT CRANE PARTS, ALL OF WHICH CULMINATE IN A READY-FOR-SHIPMENT MID- SIZE CRANE. ASSEMBLY OF MAJOR SUB-COMPONENT PARTS DID NOT, ACCORDING TO AMHOIST OFFICIALS, CONSTITUTE THE PRINCIPAL ACTIVITY OF THE ST. PAUL OPERATION, BUT WAS MERELY ONE IMPORTANT ACTIVITY IN THE PLANT'S INTEGRATED PROCESSES. NOR WAS THE "ASSEMBLY" PROCESS ANY MORE UNIQUE OR DISTINCTIVE TO ST. PAUL THAN THE OTHER MANUFACTURING PROCESSES, ALL OF WHICH WERE DEVOTED PRIMARILY TO THE MANUFACTURING OF MID-SIZED CRANES. FURTHER, SUBCONTRACTING OF THE MANUFACTURING ACTIVITIES OCCURRED IN ST. PAUL, BUT AMHOIST OFFICIALS INDICATE THAT FOR TRADITIONAL ST. PAUL CRANES ONLY AN INSIGNIFICANT PERCENTAGE OF THE MANUFACTURING PROCESS WAS SUBCONTRACTED AT ANY GIVEN TIME AND THIS SUBCONTRACTING INCLUDED THE ASSEMBLY PROCESS. AMHOIST BELIEVES THAT THE AMENDMENT IS UNNECESSARY SINCE A VIOLATION OF SECTION 119(H) HAS NOT OCCURED. CONSEQUENTLY, THE AMENDMENT SHOULD BE ELIMINATED BECAUSE, IN AMHOIST'S VIEW, IT IMPOSES "AN ENORMOUS ECONOMIC BURDEN" WHICH SIGNIFICANTLY HINDERS AMHOIST'S ATTEMPTS TO PRESERVE DOMESTIC MANUFACTURING JOBS IN AMERICA. /16/

IV. GAO POSITION

WE AGREE WITH HUD'S INITIAL DETERMINATION THAT THE SHIFT OF 25 SUPERVISORY EMPLOYMENT OPPORTUNITIES FROM ST. PAUL TO WILMINGTON CONSTITUTES, AT LEAST TO THAT EXTENT, A "RELOCATION" WITHIN THE MEANING OF SECTION 119(H). THE MEMBERS OF THE HOUSE COMMITTEE, IN THEIR REPORT ON SECTION 119(H), STATED THAT THIS PROVISION REQUIRES THE SECRETARY OF HUD TO FIND THAT "THE RELOCATION OF EMPLOYMENT OPPORTUNITY FROM ONE AREA TO ANOTHER WILL NOT SIGNIFICANTLY AND ADVERSELY AFFECT THE ECONOMIC BASE OF THE FIRST AREA." /17/

WITH RESPECT TO THE TRANSFER OF $6,000,000 IN EQUIPMENT TO WILMINGTON, NORTH CAROLINA, WE THINK THE TRANSFER IS CONSISTENT WITH THE PROPOSITION THAT A RELOCATION HAS OCCURRED, EVEN IF THE TRANSFER, VIEWED IN ISOLATION, WOULD NOT NECESSARILY GIVE RISE TO A "RELOCATION." HUD INFORMS US THAT IT REGARDS THE LEGISLATIVE EMPHASIS ON "PLANTS OR FACILITIES" TO MEAN THE PRACTICAL EFFECT OF A RELOCATION ON A PLANT'S OPERATIONS, "THAT IS, ON THE JOBS THAT WOULD BE LOST AS A RESULT OF THE RELOCATION." /18/ ACCORDING TO HUD AND AMHOIST, THE $6,000,000 OF EQUIPMENT TRANSFERRED TO WILMINGTON, MOST OF WHICH COMPRISED THE MID-SIZE CRANE MANUFACTURING EQUIPMENT IN ST. PAUL, HAS THE CAPABILITY OF MANUFACTURING PRODUCTS OTHER THAN ST. PAUL CRANES. WE AGREE WITH HUD AND AMHOIST THAT THE SHIFT OF SUCH EQUIPMENT DOES NOT ITSELF ESTABLISH A RELOCATION OF "PLANT OR FACILITIES" AS THAT TERM IS USED IN THE STATUTE, SINCE THE EQUIPMENT MAY BE USED IN WILMINGTON IN ASSOCIATION WITH JOBS THAT ARE UNRELATED TO THE PRODUCTION OF THE MID SIZE CRANES.

WITH RESPECT TO THE TRANSFER OF THE PRODUCTION OF THE ST. PAUL MID SIZE CRANES, WE ARE INFORMED THAT DURING THE LAST 9 MONTHS OF THE ST. PAUL OPERATION (JULY 1984 - MARCH 1985), 40 PERCENT OF THE PRODUCTION CAPACITY OF THE ST. PAUL PLANT IN USE WAS COMMITTED TO MANUFACTURING TRADITIONAL MID-SIZE CRANES. APPROXIMATELY SIX TO TEN PERCENT OF WILMINGTON'S PRODUCTION CAPACITY IN USE DURING THE FIRST 9 MONTHS OF ITS OPERATIONS (APRIL 1985 - DECEMBER 1985) WAS DEDICATED TO MAKING THE SAME CRANES. OUR VIEW THIS FACT, COUPLED WITH THE LAYOFF OF ST. PAUL'S TRADITIONAL CRANE MANUFACTURING EMPLOYEES AND THE HIRING OF SIMILAR EMPLOYEES AT THE WILMINGTON UDAG SITE, ESTABLISHES THAT A SECTION 119(H) RELOCATION OF AMHOIST'S MANUFACTURING OPERATIONS HAS OCCURRED.

AMHOIST MAINTAINS THAT A RELOCATION DID NOT OCCUR BECAUSE THE UDAG LOAN TO WILMINGTON WAS NOT THE REASON FOR ITS DISCONTINUING THE MANUFACTURE OF MID-SIZE CRANES IN ST. PAUL, AND BECAUSE, EVEN AFTER THE TERMINATION OF THE ST. PAUL CRANE MANUFACTURING OPERATIONS, APPROXIMATELY 75 PERCENT OF THE COMPANY'S CRANE-RELATED JOBS REMAINED IN ST. PAUL. THE ISSUE, HOWEVER, IS WHETHER THE UDAG LOAN FACILITATED THE RELOCATION OF AMHOIST'S CRANE MANUFACTURING OPERATIONS TO THE WILMINGTON UDAG SITE. SINCE AMHOIST IS PRODUCING MID-SIZED ST. PAUL CRANES AT THE NORTH CAROLINA PROJECT SITE, THAT OPERATION AND EMPLOYMENT OPPORTUNITIES ASSOCIATED WITH IT HAVE BEEN RELOCATED FROM ST. PAUL TO WILMINGTON.

HUD MAINTAINS THAT A TRANSFER OF ST. PAUL'S MANUFACTURING OPERATIONS DOES NOT CONSTITUTE A RELOCATION BECAUSE THE PRINCIPAL OPERATION CONDUCTED IN ST. PAUL PLANT WAS THE ASSEMBLY AND PREPARATION FOR SHIPMENT OF TRADITIONAL ST. PAUL CRANES. UNDER ITS APRIL 1985 GRANT AMENDMENT, SUCH ACTIVITIES MAY NOT BE CONDUCTED AT THE WILMINGTON PROJECT SITE.

AMHOIST, HOWEVER, DESCRIBES ITS ST. PAUL FACILITY AS AN INTEGRATED MULTI- PURPOSE CRANE MANUFACTURING PLANT. THE PRINCIPAL OPERATION OF THE PLANT CONSISTED OF TRANSFORMING RAW MATERIALS INTO READY-FOR SHIPMENT FINISHED PRODUCTS. THIS OPERATION INVOLVED BOTH ASSEMBLY AND NONASSEMBLY MANUFACTURING ACTIVITIES, THE LATTER ACTIVITIES INVOLVING THE USE OF EIGHT OF THE TEN ST. PAUL BUILDINGS DEDICATED TO THE MANUFACTURING OPERATION. /19/ AMHOIST FURTHER INDICATES THAT ASSEMBLY PROCESS WAS NOT IN ALL CASES PERFORMED AT THE ST. PAUL SITE, AS HUD SUGGESTS, BUT WAS COMPLETED IN SOME INSTANCES AT A LOCATION OTHER THAN ST. PAUL. EXCEPT FOR THE ASSEMBLY AND PREPARATION-FOR-SHIPMENT ACTIVITIES, AMHOIST HAS MANUFACTURED ST. PAUL CRANES AT THE WILMINGTON UDAG SITE AND PLANS TO CONTINUE SUCH ACTIVITIES AS ORDERS ARRIVE.

WE BELIEVE AMHOIST'S DESCRIPTION OF THE ST. PAUL PLANT'S PRINCIPAL OPERATIONS IS ACCURATE AND CONCLUDE THAT THE AMENDMENT DOES NOT FULLY ENCOMPASS THE PRINCIPAL OPERATION OF THE PLANT. THE AMENDMENT PERMITS AMHOIST TO MANUFACTURE (EXCEPT FOR THE ASSEMBLY AND PREPARATION FOR SHIPMENT ACTIVITIES) ST. PAUL CRANES AT THE UDAG PROJECT SITE, AND THE RECORD DEMONSTRATES THAT AMHOIST HAS DONE AND CONTINUES TO DO SO. THUS, IN OUR REVIEW, THE AMENDMENT TO THE UDAG GRANT AGREEMENT HAS NOT PREVENTED A "RELOCATION" WITHIN THE MEANING OF SECTION 119(H).

ACCORDINGLY, UNLESS THE SECRETARY OF HUD FINDS THAT THE "RELOCATION DOES NOT SIGNIFICANTLY AND ADVERSELY AFFECT THE UNEMPLOYMENT OR ECONOMIC BASE" OF ST. PAUL, OR TAKES OTHER ACTIONS TO BRING THE GRANT INTO COMPLIANCE, WE MUST CONCLUDE THAT THE GRANT VIOLATES THE PROVISIONS OF SECTION 119(H).

WE DO NOT ADDRESS WHETHER, IN THE ABSENCE OF A FINDING OF NO SIGNIFICANT ADVERSE EFFECT, AMHOIST AND THE CITY OF WILMINGTON'S RELIANCE ON THE SECRETARY'S GRANT AWARD EFFECTIVELY FORECLOSES THE GOVERNMENT'S RECOVERY OF THE GRANT FUNDS ALREADY EXPENDED OR THE ASSERTION OF OTHER REMEDIES WHICH MAY BE AVAILABLE TO HUD. TO ADDRESS THIS ISSUE WOULD REQUIRE FURTHER DEVELOPMENT OF THE FACTS REGARDING THE EXPECTATIONS OF HUD AND AMHOIST ON THE ESTABLISHMENT OF THE "WILMINGTON NORTH" PLANT. THIS ADDITIONAL WORK MAY PROVE UNNECESSARY, DEPENDING ON HUD'S FUTURE COURSE OF ACTION.

APPENDIX ONE OMITTED

EXHIBIT 4 OMITTED

/1/ THE HOUSING AND COMMUNITY DEVELOPMENT ACT AMENDMENTS OF 1977, PUB.L. NO. 95-128, TIT. I, SEC. 110(B), 91 STAT. 1125 (1977), AS AMENDED BY PUB.L. NO. 97-35, TIT. III, SEC. 308, 95 STAT. 382 (1981), ESTABLISHED THE UDAG PROGRAM.

/2/ HUD HAS STATED THAT IT RECEIVED NO INFORMATION FROM AMHOIST AT THIS TIME REGARDING WHETHER "ANY PRODUCTION OF ST. PAUL PRODUCTS WOULD BE TRANSFERRED TO WILMINGTON AS, IN EFFECT, A SUPPLEMENT TO THE NEW PRODUCTS PLANNED TO BE PRODUCED THERE." HOUSING ACT OF 1985: HEARINGS BEFORE THE SUBCOMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT OF THE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS, 99TH CONG., 1ST SESS. 2791 (1985) (QUESTIONS FROM CONGRESSMAN VENTO TO SECRETARY PIERCE).

/3/ "TRADITIONAL" ST. PAUL CRANES ARE THOSE CRANE MODELS PREVIOUSLY MANUFACTURED (OR ASSEMBLED, ACCORDING TO HUD) AT THE ST. PAUL FACILITY AS PART OF ITS NORMAL OPERATIONS. THE CRANE-RELATED JOBS REMAINING INCLUDE THE DIVISION STAFF, ENGINEERING, PARTS AND SERVICE, MARKETING, SALES, MARINE/ENERGY, MANAGEMENT INFORMATION SERVICES, THE PARTS DISTRIBUTION CENTER, TEST CENTER, AND THE FOUNDRY.

/4/ HOUSING ACT OF 1985: HEARINGS BEFORE THE SUBCOMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT OF THE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS, 99TH CONG., 1ST SESS. 2794 (1985) (HEREINAFTER CALLED "HEARINGS").

/5/ LETTER TO ACTING ASSISTANT GENERAL COUNSEL GARY L. KEPPLINGER FROM HUD ASSOCIATE GENERAL COUNSEL ROBERT S. KENISON, PAGE 3, DATED MAY 31, 1985, (HEREINAFTER CALLED "MAY 31, 1985, HUD LETTER").

/6/ HEARINGS, PAGE 2794.

/7/ MAY 31, 1985, HUD LETTER, PAGE 3.

/8/ MAY 31, 1985, HUD LETTER, PAGE 3.

/9/ MAY 31, 1985, HUD LETTER, PAGE 3.

/10/ HEARINGS, PAGE 2792.

/11/ JULY 22, 1985, LETTER FROM HUD GENERAL COUNSEL JOHN J. KNAPP TO GAO EVALUATOR MIKE OGLES, P. 1-2 (HEREINAFTER "JULY 22, 1985, HUD LETTER"). HUD DEFINES "ASSEMBLY" AS "PUTTING TOGETHER THE MAJOR SUB ASSEMBLY PARTS, MEANING, AT LEAST, THE 'UPPER' AND 'LOWER' SUB ASSEMBLIES."

/12/ FEBRUARY 22, 1985, AMHOIST LETTER TO JEFFREY A. FINKLE, ACTING DEPUTY ASSISTANT SECRETARY FOR PROGRAM MANAGEMENT, PAGES 3-4 (HEREINAFTER CALLED FEBRUARY 22, 1985 AMHOIST LETTER").

/13/ IN SUPPORT OF ITS POSITION, AMHOIST POINTS TO THE AVAILABILITY OF THE ST. PAUL SITE FOR A PLANNED COMMERCIAL RIVERFRONT DEVELOPMENT PROJECT AND THE FACT THAT THE LOSS OF ONLY 200 JOBS FROM THE PLANT'S CLOSURE WOULD NOT BE SIGNIFICANT BECAUSE ST. PAUL IS "ECONOMICALLY VIBRANT." (AMHOIST MAINTAINS THAT A LOSS OF APPROXIMATELY 33 JOBS FROM THE MANUFACTURE OF A NONTRADITIONAL ST. PAUL CRANE IS IRRELEVANT TO THE MANUFACTURING ISSUE). /14/ HUD APPARENTLY WOULD NOT AUTHORIZE THE DRAWDOWN OF THE UDAG FUNDS UNTIL AN AGREEMENT ON THE RELOCATION ISSUE WAS REACHED WITH AMHOIST.

/15/ AUGUST 2, 1985, AMHOIST LETTER, PAGE 6.

/16/ AUGUST 2, 1985, AMHOIST LETTER, PAGE 7.

/17/ H.R. REP. NO. 95-236, 95 CONG., 1ST SESS. 9 (MAY 2, 1977).

/18/ MAY 31, 1985 HUD LETTER, PP. 2, 3, 4.

/19/ SEE APPENDIX ONE.