State laws to blame for lack of minority contracting

IN THE EARLY DAYS of the pandemic, the Paycheck Protection Program offered a crucial lifeline for millions of suddenly desperate businesses. Yet as banks doled out nearly $1 trillion in PPP money, minority-owned businesses were at the back of the line. It was a glaring example of how even the most well-intentioned public policies can perpetuate racial inequality. The American Rescue Plan Act  and the Bipartisan Infrastructure Law offer a do-over of sorts. Combined, these federal programs will inject $3 trillion into US businesses and communities.

Inequities in business ownership are a major contributor to the racial wealth gap. In Massachusetts, White residents are twice as likely to own a company as those who are Black or Hispanic. A big part of the problem is limited access to government spending. In many sectors, government contracts make up a large share of revenue. This is particularly true in growing young industries like clean energy, where there are generational fortunes to be made.

The Color of Public Money series by WGBH has shown how minority-owned businesses are regularly shut out of contracts awarded by state and local agencies in Massachusetts. New research by MassINC and Lawyers for Civil Rights exposes the root of the problem—our state laws make it exceedingly difficult for procurement officers to implement supplier diversity programs that have been highly effective elsewhere.

In many states, public spending sows equitable growth because local governments give a leg up to underrepresented businesses. While they may pay slightly more for goods and services in the short-term, over time, they have more companies bidding for public contracts.

Setting aside equity for a moment, it is critical to address public contracting problems now because Massachusetts doesn’t have nearly enough firms to fix our crumbling public infrastructure. With one of the lowest rates of contracting through minority-owned businesses among major US transit agencies, the MBTA offers a case study of what can go wrong when government agencies struggle with supplier diversity.

Massachusetts is home to thousands of minority-owned construction businesses that are eager to grow and build their capabilities. Changing state contracting law to give these businesses opportunities to compete for larger public projects will lower costs in the long run. Equally important, more inclusive contracting will help address a worker shortage that grows more acute by the day; studies find construction businesses led by people of color are far better at hiring and training minority workers. In turn, many of these minority workers live and spend money in the communities most adversely affected by the pandemic, a dual benefit.

Gov. Charlie Baker recently signed an $11.4 billion infrastructure bill that establishes a framework for how Massachusetts will spend funds from the Bipartisan Infrastructure Law. While provisions to correct the overly restrictive contracting laws that hamper supplier diversity efforts were noticeably absent from this package, there is still time for the Legislature to act. One logical vehicle is legislation allocating the state’s remaining ARPA funds.

The nonprofit public health institute Health Resources in Action is supporting Massachusetts communities to address, in the words of the ARPA legislation, “systemic public health and economic challenges that have contributed to the unequal impact of the pandemic.” The institute’s work has revealed numerous barriers that make it difficult to invest federal ARPA resources in a manner that targets these systemic issues. High atop the list is the absolute low-bid requirement for most areas of public purchasing. These provisions prevent municipalities from implementing many of the supplier diversity best practices recommended by the National League of Cities.

While these outdated state contracting laws are not the only obstacle, modernizing them will put communities in a far better position to resolve other issues.

Since the onset of the pandemic, legislators have passed numerous bills to create a more equitable Commonwealth. From police reform to legislation providing driver’s licenses to undocumented immigrants, they have had to contend with complex and often controversial issues to make progress. Unfortunately, there can be no rest for the weary. Without immediate action, the Paycheck Protection Plan loan debacle is poised to play out all over again.

Benjamin Forman is the research director at MassINC and Ben Wood is the senior director for policy and practice at Health Resources in Action.