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Status report

Sharing the wealth

The good news is that Illinois government
appears to be doing a creditable job of promoting
economic development among minorities

by Burney Simpson
Illustration by Daisy Juarez

The Rev. Jesse Jackson is working New York's Wall Street and Chicago's LaSalle Street, attempting to encourage the financial powerhouses to invest in inner city communities. The reason, he argues, is that access to capital will turn out to be the fourth phase of African-American history, following slavery, the segregation policies of the Jim Crow era and the civil rights movement of the 1950s and 1960s.

Jackson's strategy for jawboning the private sector is fairly new.

But the public sector has been promoting economic development among minorities for decades. And, all things considered, the good news is that Illinois government appears to be doing a relatively creditable job of it.

One of the more successful efforts, falling under the rubric of affirmative action, is the so-called "set aside" program requiring publicly funded projects to issue a portion of all contracts to under-represented groups. That requirement has covered minority- and female-owned businesses for more than 30 years.

The underlying idea is that discrimination has long held back the growth of these businesses. To help such firms prosper, state and local governments set goals for issuing contracts. Those goals are typically pegged to a percentage of the value of the government's total




IN THE NEWS
Local program under fire


Chicago's set aside program dates to the administration of the late Harold Washington, the city's first black mayor. And according to the budget office, which oversees the effort, it has been successful in reaching its goal of issuing a quarter of the city's contracts to minority-owned firms and 5 percent to women-owned firms.

But Mayor Richard M. Daley's administration has been rocked with questions about the validity of some of the firms who win those contracts. Late last year, the city announced it would review the procedures it used to certify the 2,400 firms that participate in the program.

This followed reports by the Chicago Tribune that found one firm had been certified as being run by females, though it was actually run by men. Those men are members of a politically connected family. The firm, Windy City Maintenance, was kicked out of the program after a review by the city's law department.

Then last March, the Chicago Sun-Times reported that the wife of a former state representative convicted on corruption charges was earning set aside contracts for her engineering firm. Heather Kotlarz, who studied political science in college, had bought the firm in 1997, using proceeds from the sale of a house owned by her husband, Joseph Kotlarz. The firm was awarded $10 million worth of contracts through the city program, according to the Sun-Times. Joseph Kotlarz, a Chicago Democrat who served in the Illinois House from 1993 to 1997, was sentenced to six months in jail for skimming money from a deal on Illinois tollway land. That made him ineligible for government contracts. Mayor Daley defended the certification, arguing someone without an engineering background could still manage the firm.

Meanwhile, the city did decertify a boat towing company that supposedly was run by a woman but was determined to be controlled by former state Sen. Glenn Dawson.

In response to the headlines, Daley named David Malone, an R.R. Donnelley executive, as the new chief of the city's set aside program.

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contracts over the course of a year.

Officials do have a track record they can point to. Still, in the last two decades, court challenges to set aside programs have rolled across the country. In two important cases, the U.S. Supreme Court ruled governments with such programs must be able to prove statistically that past discrimin-ation has hurt minority businesses. Further, they must be able to prove that set aside programs have remedied that discrimination.

As a result of these challenges, some governments have gone so far as to eliminate their programs altogether. Yet, despite such pressures, the state of Illinois has stepped up its efforts. The total dollars flowing through the set aside program is rising. And the target goal was increased last year from 12 percent of state business to 19 percent. More to the point, a recent study found that Illinois government is doing a better job than the private sector in providing contracts to minority-owned firms.

Shortly after he took office last year, Gov. George Ryan issued an executive order to make it easier for such firms to get state contracts. Nevertheless, questions remain about the effectiveness -- even the value -- of the state's set aside policies.

The Minority and Female Business Enterprise program was launched in 1984 for 41 agencies, boards and commissions that reported to the governor. They were to issue a total of 10 percent of their contacts to firms that were at least 51 percent owned by women or by black, Hispanic, Asian or Native American men. Five percent of the contracts were to go to female-owned businesses and 5 percent to minority-owned firms. Those firms earning more than $14 million annually were ineligible, except in special circumstances. It was a felony for vendors to misrepresent themselves or to otherwise win contracts fraudulently.

According to state reports, minority-owned firms earned about $60 million in state business prior to 1984. Within the next three years, though, the state had issued contracts worth $177 million to more than 1,000 minority- and women-owned firms. Public universities were ultimately folded into the program and the goals were expanded, meaning an additional 2 percent of contracts were to go to businesses owned by the disabled. Two years ago, some $239.7 million in contracts were issued, exceeding the goal by more than $20 million, according to the program's annual report. The effort, now called the Business Enterprise Program, is under the Department of Central Management Services, which oversees personnel and purchasing for agencies under the governor.

By their own account, the program has been a success.

But, in light of the U.S. Supreme Court's rulings, the state's enterprise governing board commissioned a consultant to review the record. That 1997 study attempted to determine whether the program helps targeted businesses and whether it helps remedy discrimination. Chicago-based National Economic Research Associates examinedfiscal years 1990 through 1994. The consultants found that by the last year, targeted businesses were receiving 17 percent of the state's contracts for goods and services, exceeding the state's goal of 12 percent. In contrast, a review of Illinois' private sector indicated it wasn't as successful at sharing the wealth with under-represented groups. For example, black-owned and Hispanic-owned service companies should have been doing more than twice as much business with the private sector, according to the report. The consultants concluded the state's program was both successful and necessary to redress discrimination still evident in the private sector.

The report wasn't all good news for the public sector. The study also found that the number of female-owned firms in Illinois enabled the state to meet its goal with regard to that group, while there was a shortage of minority-owned firms providing the goods and services the state needs. The report recommended the goals be changed to reflect that reality. As a result, program officials voted to raise the state's goal to 19 percent for all under-represented

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groups. Female-owned companies would get 12 percent of the total, but 3 percent of those contracts would be set aside for companies owned by women of color. The targets for minor-ity men and the disabled would remain at 5 percent and 2 percent respectively. Those changes took effect last July.

"There was a supply of [women] vendors out there. But there were only 2.5 percent minority male [businesses]. We didn't want to reduce that. So we left it at 5 percent," says Sharon Young, an administrator with Chicago State University and a board member of the enterprise program. In fact, the stats support the need for the change. In fiscal year 1987, firms owned by white females earned about a third of the dollars going through the program. The rest went to firms owned by men and women of color. But by fiscal year 1998, firms headed by white females earned a little more than half of the dollars. Firms owned by men and women of color earned 41 percent and the disabled 8 percent.

There's another concern. An analysis of the state's top 15 contractors in the Enterprise Program in fiscal year 1999 indicates that only two are women- or minority-owned. The rest are sheltered workshops that employ or work with the disabled. Such state agencies as the Department of Children and Family Services and Human Services issue those contracts to run workshops.

"We can't control the state's needs," says Ben Bagby, assistant legal counsel with Central Management Services. "[The disabled] are in a similar situation as women- or minority-owned firms. People can shy away from doing business with them. We want to level the playing field." The program's participants have concerns, too. Those firms can be certified by Central Management Services, the Illinois Department of Transportation or two independent groups that have certification recipro-city agreements: the Chicago Minority Business Development Council and the Women's Business Development Center. Such certification enables businesses to get on the approved list for state contracts. But a common complaint is that the process involves too much paperwork. Indeed, the forms run to a dozen pages. Applicants also face work site visits by inspectors aimed at determining the gender or ethnicity of the firms and their workers.

Last February, Gov. Ryan set up an advisory committee to determine whether the certification process can be simplified. But some believe the program needs more than tinkering. State Sen. Rickey Hendon, a Chicago Democrat, has proposed reviewing the groups covered by the program and toughening the penalties for fraud.

Other critics contend the state simply isn't living up to its end of the bargain. The transportation department, the largest state agency in terms of the dollar value of its contracts, is receiving its share of complaints these days. That agency doled out $103 million through the program in fiscal year 1998 to builders, architects, engineers, plumbers, electricians, traffic controllers, haulers and others needed for road projects. But an African-American activist group, the Work-Ship Coalition, has stopped traffic along the Stevenson Expressway on the southwest side of Chicago several times this spring to protest what it sees as too few minority workers hired for the $567 million rebuilding project. Calvin "Omar" Johnson, spokesman for the group, argues firms owned by white women account for almost all of the minority businesses working on the project.

Meanwhile, the Hispanic American Construction Industry Association is troubled. Rafael Hernandez, the group's executive director, says the Stevenson is going through such Hispanic communities as Pilsen and Little Village, yet is offering few job opportunities to those residents. "People in the community should be the primary focus for laborers and training programs," says Hernandez. "We want to make sure that the community impacted by construction participates."

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But Martha Schiebel, a department spokesperson, says minority contractors earned 15 percent of the Stevenson contracts last year. And in April, nearly half of the 399 construction laborers were minority males.

Still, women-owned firms do dominate the list of the largest contractors who find work through that department's set aside program. Seven of the 10 largest contractors were women-owned, including the top three.

Schiebel argues the department meets its goals for the program, and that can be difficult in areas of the state that have few minorities. "Some projects, we meet the goals, and some we don't. But we meet the annual goals statewide," she says.

Still, transportation Secretary Kirk Brown met with activists last month and agreed to organize a meeting between larger contractors and minority- and female-owned firms interested in working on the Stevenson.

The disagreement highlights a continuing point of contention about these programs. A firm may be certified as minority- or women-owned, but activists worry the group is merely a front for white owners. In fact, tracking ownership can be difficult. Critics argue the public sector doesn't have enough staff to monitor the programs to ensure compliance. Officials respond that some bad apples are sure to get through but that most firms are legitimate.

Efforts to institute set asides go back to a 1965 presidential order that required certain federal contractors to adopt such plans. The programs have been challenged ever since.

In 1989, the U.S. Supreme Court ruled in Richmond v. J.R. Croson Co. that that city's minority set aside program was unconstitutional. The court ruled the Virginia city had not proven its program was necessary to remedy discrimination at the local level or that there was an adequate supply or "availability" of minority contractors to meet the set aside requirement.

In 1995, the court ruled affirmative action programs had to be "narrowly tailored" to redress proven past discrimination. At the same time, political opposition to such programs was growing. California paved the road in the 1990s, first by curtailing race- and gender-based preferences, then by discontinuing its 15 percent set aside goals.

But in Illinois, firms that participate, even if only in a minor way, are at least in the game. And that's a step up from 30 years ago, according to state Sen. Steven Rauschenberger, an Elgin Republican.

"If I'm a [participating] minority- or women-owned firm, I work with a majority firm. I may pass through some of the contract to another firm. But I meet the letter of the law. I take an active part as a member of a discriminated group," says Rauschenberger. 

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