Making the Grade

Making The Grade 2016

November 17, 2016

Executive Summary

New York City boasts one of the largest and most diverse business communities in the United States.  Minority- and women-owned business enterprises (M/WBEs) comprise just over half of all firms in New York City, with 539,447 minority-owned firms and 413,899 women-owned firms,[i] representing a powerful economic engine for the city.

However, despite years of effort to increase opportunities for M/WBEs in City procurement, these businesses continue to receive an unacceptably small share of New York City’s procurement dollars.  In Fiscal Year (FY) 2016, the City procured $15.3 billion worth of goods and services, but only 4.8 percent went to M/WBEs.[ii]  In total, only 994 certified M/WBEs received payments from the City during the entire fiscal year.[iii]

This underutilization of M/WBEs in City procurement has serious consequences for the fiscal health of the City, the local economy, and taxpayers. A robust M/WBE program increases competition in public procurement, ensuring taxpayer dollars are used efficiently, while fostering a more equitable and competitive economy of shared prosperity across the City.  Additionally, the underutilization of M/WBEs has had a dire impact on communities of color.  City contracting resulted in an estimated 96,630 direct jobs in FY16 alone, which could greatly benefit communities of color, where unemployment and poverty are still at rates double that of White communities.[iv]

In an effort to boost the City’s M/WBE spending and increase transparency, Comptroller Stringer introduced the inaugural Making the Grade report in 2014.  This annual report grades mayoral agencies on their M/WBE spending in the prior fiscal year, using the framework of Local Law 1 of 2013 (LL 1), which established a series of goals for M/WBE participation in public contracting.

This year’s report includes several major findings:

  • In FY16, only 4.8 percent of the City’s procurement of goods and services went to M/WBEs,[v] a decrease from 5.3 percent in FY15[vi] and the first decline since FY13.[vii] This amounts to only $728 million of the City’s $15.3 billion procurement pool in FY16.[viii]
  • Out of the 4,527 certified M/WBEs, only 994 received City spending on goods or services in FY16. This means that 3,533 certified M/WBEs, or nearly 80 percent of certified M/WBEs, did not receive any City dollars in FY16.[ix]
  • This year’s grades show little progress over last year. Nearly half of the 32 agencies graded received a “D” or “F” grade, and only one agency received an “A” grade.  As a result, the City’s overall grade did not change, remaining a “D+” in FY16.

In short, despite the City’s attempts over the past thirty years to increase procurement opportunities for women and communities of color, the share of City dollars received by M/WBEs has not increased in a meaningful way. That said, the City has taken some positive steps over the past three years to improve outcomes for M/WBEs, including a recently announced set of reforms that if fully implemented, hold promise.  What is needed, however, is a more robust, strategic approach that focuses on M/WBE growth and development in a manner that truly enhances opportunities for women and people of color, while creating a level playing field in City procurement.

This report takes an in-depth look at the City’s M/WBE program and includes the following recommendations for further reform:

  1. Develop a more comprehensive and all-inclusive M/WBE development program across all City agencies that employs the full range of wraparound policies needed to foster greater M/WBE utilization. While several City agencies have M/WBE programs that alleviate certain challenges, these programs vary in size and scope and do not simultaneously address the multitude of barriers facing M/WBEs.
  2. Appoint a Chief Diversity Officer (CDO) who reports directly to the Mayor and whose sole responsibility is to drive M/WBE utilization strategy and strengthen agency accountability toward achieving M/WBE participation goals. To enable the CDO to achieve these goals, the City should implement a citywide technology system that monitors and tracks agency M/WBE spending in real time, provides analysis of agency utilization goals, and alerts agencies when they are off target.
  3. Work across local, state and federal government to streamline the certification process and create a universal certification application.

As with the last two Making the Grade reports, the 31 mayoral agencies that are the focus of this year’s report are all subject to Local Law 1 and account for a significant share of the City’s M/WBE spending.

The Comptroller’s Office is once again included, bringing the total number of agencies reviewed for this report to 32.  The grades are based on actual spending with M/WBEs during the fiscal year, not on contracts awarded that may or may not result in dollars spent on future projects.  While Local Law 1 compliance reports measure progress towards goals in agency utilization plans, they are based on future projections of spending off the registered value of contracts and can often span multiple years.  Actual spending with M/WBEs is a more accurate and real time measure of M/WBE utilization.

In order to further increase transparency, for the first time ever, the Comptroller’s Office has created a set of dynamic interactive maps that illustrate the City’s spending with certified M/WBEs by race, ethnicity and gender, by community district and borough, from FY11 to FY16.  These maps illustrate where M/WBE spending is and is not happening and can be used as a tool to better understand the M/WBE landscape in New York City. The maps can be found on the Comptroller’s website at comptroller.nyc.gov.

Economic Landscape for Communities of Color in New York City

Unemployment and Poverty

Since the 1980s, New York City has been a “majority-minority” city, with nearly six million people of color now residing in the five boroughs. And yet, despite comprising 67 percent of the City’s population,[x] people of color in New York City continue to experience persistent racial and economic barriers.

Table I

New York City Population
by Race and Ethnicity
Race/Ethnicity Count Percent
White 2,735,082 32.7%
Hispanic 2,407,983 28.8%
Black 1,886,662 22.6%
Asian 1,098,961 13.2%
Other 226,201 2.7%
Total 8,354,889 100.0%

Source: U.S. Census Bureau, 2010-2014 American Community Survey, 5-Year Estimates: Race and Ethnicity

Over the last decade, the country suffered through the devastating economic impact of the Great Recession, and its ensuing uneven recovery has largely bypassed millions of New Yorkers, especially in communities of color.  Additionally, recent studies show communities of color continue to face unequal access to educational opportunities,[xi] high unemployment rates,[xii] limited access to traditional financial services, and predatory lending practices[xiii] in comparison to White communities.

A recent analysis by the Economic Policy Institute revealed that New York State has the most unequal income distribution of any state in the country, as the top one percent of wage earners earn 45.4 percent more than the bottom 99 percent.[xiv]  Additionally, high unemployment and poverty continue to plague Black and Hispanic communities across the City. While the City’s unemployment rate is currently 4.8 percent, the unemployment rate for White and Asian New Yorkers is lower than that average at 3.6 percent and 3.9 percent respectively, but the unemployment rate for Hispanic New Yorkers is nearly three percentage points higher at 6.2 percent, and the Black unemployment rate is almost double the White rate, at 7 percent.[xv]

Chart I

chart1
Source: Economic Policy Institute unpublished analysis of Current Population Survey microdata, basis monthly survey, average unemployment rate over 12-month period from July 2015 – June 2016

Poverty rates are also substantially higher for people of color.  In 2015, 20 percent of New Yorkers lived below the poverty line: 14.6 percent of Whites, 18.3 percent of Asians, 22.7 percent of Blacks, and 28.4 percent of Hispanics.[xvi]

Barriers to Minority-Owned Business Growth

One reason for the City’s persistent racial divide in employment and poverty is the continued barriers faced by many minority- and women-owned businesses in securing access to capital.  These barriers remain one of the most significant factors limiting the establishment, expansion and growth of small businesses in communities of color.  Without capital, many businesses fail to realize their full potential.[xvii]

According to a report from the Minority Business Development Agency of the U.S. Department of Commerce (MBDA), access to capital is as much an issue today as it was in 1969, when the MBDA was first established.  Overall, the MBDA found that minority-owned firms are two to three times more likely to be denied when applying for business loans than White-owned firms, and as a result are less likely to apply for such loans for fear of rejection.  Even when they do receive loans, the loans received are on average smaller than those received by White-owned firms, and have higher interest rates attached.  The average loan amount for minority-owned firms with annual gross receipts over $500,000 was $149,000, while the average loan amount for similarly sized White-owned firms was more than double that at $310,000.  Moreover, the MBDA ascertained that minority-owned firms paid an average of 7.8 percent interest, while non-minority owned firms paid 6.4 percent.[xviii]

In addition to lacking access to capital through mainstream financial institutions, lower personal wealth is also a barrier to entry for entrepreneurs in communities of color.[xix]  Black and Latino households own on average six and seven times less wealth, respectively, than White households.  Black households own an average of $85,000 in wealth and Latino households own an average of $98,000, compared to $656,000 for White households.[xx]  These lower levels of wealth, in combination with liquidity constraints, create substantial obstacles for many minority business owners who do not have the required collateral to obtain loans or bonds.[xxi]

The gaps in wealth are so large that if White wealth remained flat at today’s levels and average wealth for Latino and Black families grew at the same pace it has over the past three decades, it would take average Latino families 84 years, and Black families 228 years, to reach wealth parity with White families.[xxii]

The State of Minority-Owned Businesses

Despite these substantial barriers, data from the U.S. Census Bureau’s Survey of Business Owners shows that from 2007 to 2012, the number of minority-owned firms in New York City increased from 403,812 to 539,447, or by 34 percent, and the number of women-owned firms increased from 305,198 to 413,899 or by 36 percent.[xxiii]

While this growth is a positive sign, the sobering fact remains that there are large disparities between minority and non-minority-owned firms.  The MBDA noted in a recent report that while the number of minority-owned firms nationally has grown by 38 percent, from 5.8 million in 2007 to 8 million in 2012, the average receipts per firm declined by two percent.  During the same period, the number of White-owned firms nationally decreased by six percent, while the average receipts per firm increased by 13 percent.[xxiv]

The average value of minority-owned businesses are also significantly lower than the average value of White-owned businesses.  As shown in Chart II, White-owned businesses in New York State are, on average, worth two times more than the average Asian-owned businesses, eight times more than the average Hispanic-owned businesses and thirteen times more than the average Black-owned businesses.[xxv]

Chart II

chart2
Source: Corporation for Enterprise Development Analysis of Survey of Business Owners. Washington, DC: U.S. Department of Commerce, Census Bureau, 2015.

Minority-owned businesses are crucial engines of job creation in communities of color that “reduce national unemployment levels, and in particular the high rate of unemployment in minority communities,”[xxvi] rendering them increasingly important to New York City’s economy.  For example, one survey of Chicago small business owners found that minority business owners are five times more likely to hire minority workers than white-owned businesses.[xxvii]

In FY16, New York City procured $15.3 billion of goods and services, resulting in an estimated 96,630 direct jobs.[xxviii]  This spending has the potential to boost economic prosperity throughout the five boroughs.  While minority and women-owned businesses continue to experience discrimination in lending and other obstacles, government can help level the playing field by ensuring City procurement is inclusive and fair.

The History of New York City’s M/WBE Program

Since the 1990s, the City has attempted to combat historical discrimination faced by minorities and women, and ensure fairness and equity in City procurement.

In 1992, following the US Supreme Court ruling in the City of Richmond v. J. A. Croson Co.,[xxix] the City commissioned its first disparity study: a formal analysis designed to assess the availability of M/WBE businesses that are capable of performing City work in different sectors and determine whether these businesses are underutilized in City procurement.  The study found that M/WBEs received a disproportionately small share of City contracts.  As a result, Mayor David Dinkins directed 20 percent of City procurement to be awarded to M/WBEs and allowed contracts to be awarded to M/WBEs that bid up to 10 percent higher than the lowest bid.[xxx]

Mayor Dinkins asserted that the program was responsible for increasing the percentage of City contracts awarded to M/WBEs from nine percent in 1990 to 17.5 percent in 1993.[xxxi]  In 1994, the City’s M/WBE program was determined to be in violation of New York State law,[xxxii] because Section 103 of the General Municipal Law required that public contracts in excess of $20,000 be awarded to the lowest responsible bidder.  Mayor Giuliani did not appeal this decision and allowed the rules governing the M/WBE program to sunset.

In December 2004, the New York City Council commissioned a second disparity study that once again found that qualified M/WBEs were receiving a disproportionately small share of City contracts.[xxxiii]  This finding led to the passage of Local Law 129 of 2005 (LL 129), which set non-binding goals for New York City mayoral agencies to award a certain percentage of smaller contracts (between $5,000 and $1 million) to M/WBEs.[xxxiv]

LL 129 was in effect from fiscal years 2007 to 2013, during which time the number of certified M/WBE firms rose from 1,236 to 3,700 and the value of prime contacts awarded to M/WBEs increased from $195 million to $330 million.[xxxv]  Unfortunately, despite these increases, LL 129 failed to move the needle in a significant way on the share of City contract dollars awarded to M/WBEs.

Local Law 1 of 2013

In 2013, the New York City Council passed significant amendments to the City’s M/WBE program.  These reforms, known as Local Law 1 of 2013 (LL 1), went into effect at the beginning of FY 2014.  In addition to updating M/WBE participation goals for construction, professional services, standard services, and goods under $100,000 (shown in Table II), the amendments also removed the $1 million cap on contracts subject to the non-binding goals and permitted agencies to meet participation goals through both prime contracting and subcontracting.[xxxvi]

Table II

Local Law 1 Participation Goals
Category Construction Professional Services Standard Services Goods
( <$100K)
Black Americans 8% 12% 12% 7%
Hispanic Americans 4% 8% 6% 5%
Asian Americans 8% No Goal 3% 8%
Women 18% 17% 10% 25%
Emerging 6% 6% 6% 6%

While several of LL 1’s participation goals appear lower than those set by LL 129, the new goals apply to a much broader set of contracts, so the net value of the goals in total dollars is now significantly higher.

Recent Changes to New York City’s M/WBE Program

Several initiatives aimed at increasing M/WBE participation in City contracting have been implemented by the City since 2014, including:

  • Setting a goal of awarding a minimum of $16 billion in City contracts to certified M/WBEs over ten years, from FY15 to FY25;[xxxvii]
  • Launching the NYC Online Certification Portal for M/WBEs, offering one-on-one certification application review sessions, and employing staff dedicated to capacity building and technical assistance for M/WBEs, through the Department of Small Business Services (SBS);[xxxviii]
  • Amending the Procurement Policy Board Rules to: 1) increase the dollar amount of discretionary micro-purchases in construction from $20,000 to $35,000,[xxxix] and 2) approve a Comptroller Office’s proposal to permit purchase contracts that are awarded on the basis of best value to include quantitative factors for M/WBEs when evaluating bids and offers;[xl]
  • Piloting a $10 million Emerging Developer Loan Fund to help emerging firms secure financing for real estate development projects through the New York City Economic Development Corporation (NYCEDC); and
  • Launching the ConstructNYC program to connect M/WBEs, veteran-owned and otherwise disadvantaged businesses with opportunities to work on NYCEDC projects through contracts of up to $1 million.[xli]

Additionally, the Mayor announced several new M/WBE initiatives and goals in September 2016, including:

  • The creation of the Mayor’s Office of M/WBEs;
  • Doubling the number of certified M/WBEs by 2019 from 4,500 to 9,000 and awarding 30 percent of the dollar value of City contracts to M/WBEs by 2021;[xlii]
  • Expanding the City’s Contract Financing Loan program to offer low-interest loans of up to $500,000 – an increase from the previous maximum of $150,000;[xliii] and
  • Increasing funding to SBS and Mayor’s Office of Contract Services for capacity building programs, surety bonding, mentorship and technical assistance.[xliv]

There were also legislative developments in 2016:

  • Legislation was introduced in Albany to authorize the creation and use of pre-qualified lists across industries (A8044A/S05924-A); raise the City’s threshold for micro-purchases for non-construction contracts from $20,000 to $200,000 to bring it in line with the State (A8044A/S05924-A); develop M/WBE capacity building programs to encourage M/WBE competition on City contracts (A8044A/S05924-A);[xlv] and allow subcontractors on construction contracts to receive payments directly from the City in some circumstances (A09740).[xlvi]
  • The New York City Council passed legislation that requires: SBS to submit an annual report regarding the satisfaction of M/WBE goals by recipients of economic development benefits (Local Law 109);[xlvii] training for agency chief contracting officers and M/WBE officers (Local Law 113);[xlviii] the establishment of an M/WBEadvisory board (Local Law 114);[xlix] agency M/WBE utilization plans to be published online (Local Law 116);[l] amended agency reporting requirements related to M/WBE participation to include all agency contracts (Local Law 117);[li] and detailed explanations of the determinations made by the City Chief Procurement Officer with regards to whether to divide proposed contracts over $10 million into smaller contracts (Local Law 118).[lii]

Shortfalls of New York City’s M/WBE Program

Low M/WBE Utilization

Despite efforts to increase M/WBE utilization, the City has largely failed to achieve significant growth in M/WBE spending.  The M/WBE share of City procurement decreased to 4.8 percent in FY16,[liii] from 5.3 percent in FY15.[liv]  It amounts to only $728 million of the City’s $15.3 billion procurement of goods and services in FY16.[lv]

Chart III

chart3
Source: MOCS Agency Procurement Indicators: Fiscal Years 2007 to 2016, and OneNYC: Minority and Women-Owned Business Enterprise Bulletin, Sept. 2015.

While the number of minority-owned businesses in the City grew by 34 percent from 2007 to 2012,[lvi] and the number of women-owned businesses grew by 36 percent,[lvii] the M/WBE share of public procurement dollars during that same period rose by only 3.4 percent. M/WBEs comprise over half of all firms in New York City,[lviii] yet these firms remain underutilized in public contracting.

Low Correlation between M/WBE Certification and City Spending

The number of certified M/WBEs in the City increased by 12.5 percent, from 4,115 in FY15,[lix] to 4,527 in FY16.[lx]  While this growth is a step in the right direction, it amounts to less than one percent of minority- and women-owned businesses citywide.

Out of the 4,527 certified M/WBEs, only 994 received City spending on goods or services in FY16 according to analysis by the Comptroller’s Office of Checkbook NYC data.  This means that 3,533 certified M/WBEs, or nearly 80 percent of those certified, did not receive City dollars in FY16.[lxi]

While doubling the number of certified M/WBEs is an important goal, unless these businesses are actually able to secure contracts with the City, the effort will not deliver meaningful results.

The following map depicts New York City spending with certified M/WBEs by community board district. While some community boards saw significantly higher levels of M/WBE spending than others, overall, the total amount spent with M/WBEs remains low across the City.

Additional maps that show the City’s spending with certified M/WBEs by individual categories (Black, Hispanic, Asian and Women) can be found in Appendix A.

Interactive maps that detail City spending with certified M/WBEs by race, ethnicity and gender, by community district and borough, from FY11 to FY16 can be found on the Comptroller’s website at comptroller.nyc.gov.

Map I

map1

This map depicts the level of spending with New York City-based M/WBEs by Community Board District. As shown in the map, M/WBEs received a small share of the City’s $15.3 billion procurement in FY16.

Shortfalls in Procurement Practices

Despite years of effort, the data makes clear that New York City’s M/WBE program has not delivered its intended results.  Moreover, in addition to low levels of spending with M/WBEs, audits conducted by the Comptroller’s Office of the Department of Housing Preservation and Development and the Department of Design and Construction, found poor agency oversight of the M/WBE program, including failure to comply with key provisions of LL 1.  This included: inadequate recording, insufficient tracking and monitoring of contracts and subcontracts awarded to M/WBEs; insufficient evidence that the agencies monitored prime contactors’ use of M/WBEs for contracts awarded with M/WBE participation goals; deficiencies in collecting required documentation to confirm prime contractors were making payments to subcontractors; and lack of job site inspections to verify subcontractor use.  These deficiencies hinder the agencies’ ability to ensure that prime contractors are complying with established M/WBE participation goals and moreover, if the agency itself is achieving its M/WBE utilization goals.[lxii]

Agency Grades

As with the last two Making the Grade reports, the 31 mayoral agencies that are the focus of this year’s report are all subject to Local Law 1 and account for a significant share of the City’s M/WBE spending.  The grades are based on actual spending with M/WBEs during the fiscal year, not on contracts awarded that may or may not result in dollars spent on future projects.[lxiii]

Over the past two years, the City’s grades have been consistently poor: The City’s grade was a “D” in FY14, and a “D+” in FY15.

This year’s grades show little progress over last year.  Nearly half of the 32 agencies graded received a “D” or “F” grade, and only one agency received an “A” grade.  While overall, the City’s M/WBE spending increased by $100 million during FY16, this was not enough to raise the City’s overall grade from another “D+” in FY16.

Table III provides the assigned grades for the agencies covered by this report and compares this year’s grades (FY16) to the two previous years (FY15 and FY14).  Individual agency grade sheets are shown in Appendix B.

Table III

Comparison of FY16, FY15 and FY14 Grades
 Agency Name FY16 FY15 FY14 FY15 -FY16
Department of Housing Preservation and Development A A D No Change
Commission on Human Rights B C C Up by 1
Department for the Aging B C D Up by 1
Department of City Planning B C C Up by 1
Department of Consumer Affairs B C D Up by 1
Department of Small Business Services B F D Up by 3
Administration for Children’s Services C C C No Change
Department of Correction C D D Up by 1
Department of Cultural Affairs C C B No Change
Department of Finance C D F Up by 1
Department of Health and Mental Hygiene C C C No Change
Department of Parks and Recreation C C D No Change
Department of Youth and Community Development C C C No Change
Fire Department C D D Up by 1
Landmarks Preservation Commission C B B Down by 1
Law Department C D C Up by 1
Civilian Complaint Review Board D C C Down by 1
Department of Citywide Administrative Services D D D No Change
Department of Design and Construction D C D Down by 1
Department of Environmental Protection D F F Up by 1
Department of Homeless Services D D D No Change
Department of Information Technology and Telecommunications D D F No Change
Department of Probation D D C No Change
Department of Transportation D D D No Change
Human Resources Administration D D D No Change
NYC Taxi and Limousine Commission D D D No Change
Office of Administrative Trials and Hearings D C D Down by 1
Office of Emergency Management D D D No Change
Business Integrity Commission F D D Down by 1
Department of Buildings F D D Down by 1
Department of Sanitation F F F No Change
Office of the Comptroller B C C Up by 1

*Green grades increased from FY15, red grades decreased from FY15, and black grades have remained the same.

In aggregate, this year’s Making the Grade report details $460.8 million of City spending with certified M/WBEs in FY16, compared to $345.4 million in the FY15 report and $346.4 million in the FY14 report.

While spending levels are low across M/WBE categories, there is a substantial difference in the amount of City spending by race, ethnicity, and gender.  The City earned a “C” grade with Asian American-owned firms, and a “D” grade with Hispanic American-owned and Woman-owned firms.  Black American-owned firms fared the worst, receiving an “F” grade.

Like last year, this year’s grades include subcontracting data uploaded by prime contractors to the Payee Information Portal (PIP).  For three agencies, this made a difference. The Department of Transportation raised its FY16 grade from an “F” to a “D” due to the inclusion of M/WBE subcontractor spending data, and the Fire Department and Department of Parks and Recreation both raised their FY16 grade from a “D” to a “C” thanks to the subcontractor spending data.  However, most agencies are not enforcing the requirement that prime contractors input subcontractor data into PIP.  As a result, no subcontractor data was available for 17 of the 32 agencies analyzed.  While the Administration claims that much of the City’s M/WBE spend is with subcontractors, because agencies fail to have their contractors input their subcontractor information into PIP, the Comptroller’s Office is unable to verify this spending.

For two years in a row, one agency—Housing Preservation and Development —received an “A”.  Six agencies—the City Commission on Human Rights, Department for the Aging, Department of City Planning, Department of Consumer Affairs, Department of Small Business Services, and the Comptroller’s Office—received a “B” for the first time.  Ten agencies received a “C,” 12 agencies received a “D,” and three agencies received an “F.”

Eleven agencies—Business Integrity Commission, Department of Buildings, Department of Citywide Administrative Services, Department of Environmental Protection, Department of Homeless Services, Department of Information Technology and Telecommunications, Department of Sanitation, Department of Transportation, Human Resources Administration, Taxi and Limousine Commission, and the Office of Emergency Management—have consistently earned a “D” or “F” since grading began in FY14.

Overall, eleven agencies scored higher this year than last year, while six declined and 15 remained the same.

Table IV

Year Over Year Change in Grades
Grade
FY16
FY15
FY14
FY15 – FY16
A
1
1
0
0
B
6
1
2
+5
C
10
13
9
-3
D
12
14
17
-2
F
3
3
3
0

Summary of Methodology

To calculate each grade, the Comptroller’s Office relied on information entered into the City’s centralized Financial Management System (FMS) by agency staff, and then exported to Checkbook NYC—the Comptroller’s online transparency website. The FY16 spending data for each agency was extracted, analyzed by the population and industry categories established in LL 1, and then compared against the LL 1 Citywide M/WBE participation goals.

Like last year’s report, grades for FY16 are based on total spending by each agency across the four LL 1 industry categories and the LL 1 defined groups within each industry classification. It is important to note, however, that while the industry classifications and groups set forth in LL 1 were applied, this is not intended to be a LL 1 compliance report. Rather, it is a report detailing overall agency spending with M/WBEs in FY16, expressed both in dollars and as a percentage of total agency spending.

Certain spending not subject to LL 1—such as payroll, human services, and land acquisition—was removed from the grade calculations, along with categories where specific agencies had no relevant business (i.e., construction participation goals were removed from the calculation of agencies that perform no construction). The results were then weighted to account for the agency’s spending in different industry categories (professional services, standard services, construction, and goods).

For example, if an agency spent 50 percent of its procurement budget on construction, then 50 percent of its grade is based on meeting the construction participation goals under LL 1.  After weighting, scores were assigned a value and converted into a letter grade.

While certain additional exclusions do exist, they are limited in number and do not mirror the exempted procurement award methods listed in LL 1. Rather, the exclusions are based on the availability (or lack thereof) of M/WBEs to meet agency procurement requirements within a particular award method or contract type.

The worksheets used to calculate each agency grade appear in Appendix C and a complete explanation of the report’s methodology can be found in Appendix E.

Best Practices

Certain local agencies like the School Construction Authority (SCA) and Metropolitan Transit Authority (MTA), have developed M/WBE and/or small business development programs with demonstrated success.  Both have implemented comprehensive business development programs that have substantially increased M/WBE contracting in their respective agencies.

The SCA and MTA facilitate and encourage the participation of minority and women-owned enterprises on construction contracts through comprehensive small business development programs that integrate the opportunity for prequalified firms to bid against other similarly-sized firms for a dedicated pool of contracts, with access to loans, surety bonding, business development training, and mentorship from large, well-established construction management firms. This allows small businesses to learn on the job and ensures they have the necessary support to master smaller contracts, before graduating to take on larger contracts.[lxiv]

The SCA’s Minority-Owned, Woman-Owned and Locally Based Business Enterprises (MWLBE) Program provides access to loans of up to $150,000 and the opportunity for prequalified small firms to bid for projects up to $1 million.  The agency also requires general contractors to meet a 20 percent MWLBE subcontractor participation goal on construction projects valued at over $1 million.[lxv]  In FY15, SCA awarded nearly $66 million to small businesses – many of which are minority- or women-owned, with 31 percent of contracts and 21 percent of sub-contracted work going to small businesses.[lxvi]

The MTA offers a similar business development program for small businesses, including the opportunity for prequalified firms to compete for prime contracts up to $3 million, small business loans up to $900,000 per contract, and surety bonding assistance.  In the six years since the inception of MTA’s Small Business Development Program, the program had awarded $197.3 million in prime contracts to small businesses, many of which are minority- or women-owned, creating 4,735 new direct jobs.[lxvii]

The success of these programs can be attributed to their holistic nature. Both agencies offer a full range of support and development services to the small, local, minority- and women-owned businesses in their programs, including the opportunity to compete against like-sized firms for a dedicated pool of contracts, mentorship from experienced construction management firms throughout work on an awarded contract, and access to loans and bonding to make competing for awards possible in the first place. While the City has recently announced initiatives that include aspects of these programs, for the City to achieve the same level of success, these initiatives will need to be sufficiently funded, holistic in nature, and rigorously monitored.

Recommendations

The primary goal of Making the Grade is to highlight the utilization of M/WBEs in City procurement and to offer strategies for driving better results.  The underutilization of M/WBEs in City procurement has serious consequences for the fiscal health of the City, the local economy, and taxpayers. A robust M/WBE program increases competition in public procurement, ensuring taxpayer dollars are used efficiently, while fostering a more equitable and competitive economy of shared prosperity across the City.  It is evident from the City’s overall grade that the City must do a better job of enhancing opportunities for M/WBEs.  Policies that bring incremental change are no longer enough to address the deep disparity that women and people of color face in City procurement.  A more robust and aggressive strategy that addresses institutional barriers and fosters M/WBE growth and development is needed to truly move the needle.  As the City implements its newly announced initiatives, the following recommendations should also be considered:

  1. Develop an all-inclusive and integrated M/WBE development program across City agencies that employs the full range of wraparound policies needed to achieve greater M/WBE utilization.

Several New York City agencies have M/WBE programs that alleviate certain procurement challenges, but these programs vary in size and scope and do not provide the wraparound structure that has proven successful elsewhere.  While SBS currently offers technical assistance and capacity building support, and new citywide capacity-building, loan programs, and agency coordination have been recently announced, it is not yet known how these program will be administered and how agencies will be held accountable for results.  A more comprehensive M/WBE development program would provide:

  • Pre-qualification for small businesses and M/WBEs to compete against similarly sized firms for a dedicated pool of appropriately sized contracts. M/WBEs often face barriers accessing contract opportunities.  Creating dedicated pools of contracts at City agencies that are appropriately sized for smaller firms, and prequalifying firms to compete for those contracts, can enable and increase M/WBE participation in City procurement.
  • Oversight, guidance and support from a mentorship program throughout the lifecycle of a contract. Smaller firms may not have the experience needed to succeed on certain large or complex City projects, but with appropriate oversight, this challenge can be overcome.  A robust, wraparound mentorship program that extends throughout the lifecycle of a contract, from accessing capital and bidding to support managing awarded contracts, would enable M/WBEs to learn the technical and business development skills they need to succeed on City projects.
  • A mechanism to ensure prompt payment to program participants. M/WBEs are often smaller firms that cannot withstand the payment delays that can be common on City contracts. In order to fast-track payments, the City should implement an e-invoicing system, or develop other technology solutions, to ensure M/WBEs are paid promptly. If the City is unable to implement such solutions, it should consider engaging a third party such as a bank or a lender with the capacity to make payments to M/WBEs up front, knowing that the City would be providing reimbursements once processing was complete.
  1. Appoint a Chief Diversity Officer who reports directly to the Mayor and whose sole responsibility is to strengthen agency accountability toward achieving M/WBE utilization goals, while also providing the technology required to support these efforts.

While City agencies are required to submit M/WBE utilization and participation plans under Local Law 1 of 2013, Local Law 117 of 2016 and Mayoral Directive No. 2 of 2015, there is little accountability throughout the procurement process to ensure that the goals set forth in the plans are actually met.  In order to drive compliance, the City should appoint a Chief Diversity Officer (CDO) to focus exclusively on M/WBE strategy, spending, reporting and accountability.  Moreover, the CDO’s scope of responsibility should include ensuring that City dollars, not just contracts, are flowing to M/WBEs.  Everyone from commissioners, agency chief contracting officers (ACCOs), agency procurement staff, and contract project managers would be held accountable by the CDO for ensuring the utilization of M/WBEs in City procurement, from the moment a solicitation is issued through the completion of the project.

The City should also implement a city-wide technology system that monitors and tracks agency M/WBE spending and participation in real time, provides analysis of agency utilization goals, and alerts agencies when they are off target.  City agencies currently monitor their M/WBE utilization through the Mayor’s Office of Contract Services, which doesn’t require agencies to conduct real time analysis of their M/WBE spending.  Tracking spending also provides a more accurate picture of M/WBE utilization than simply tracking the awarding of contracts.  Moreover, real time analysis would allow for course correction if M/WBE goals are not being met, and encourage additional outreach to increase opportunities for prospective M/WBE bidders.  Agencies would be able to verify that M/WBE subcontractors are participating on projects and ensure accurate and timely payments to subcontractors by prime contractors.

  1. Work across levels of government to create a universal certification application and streamline the certification process. 

Currently, M/WBEs have to certify separately with different local, state and federal jurisdictions and entities, creating an unnecessarily cumbersome and burdensome certification process.  Applications are complex and lengthy, leaving many firms wondering if receiving even a single certification is worth the effort.  These multiple applications can be standardized into a single, simpler digital application that is automatically submitted to every certifying body, resulting in multiple certifications from one application.  While different certifying agencies may have unique requirements, M/WBEs could fill out supplemental applications and submit stored pertinent documents as requested by each agency, similar to the Common Application used by over 700 colleges and universities for undergraduate college admissions

Streamlining certification and creating one universal certification application, with prompt approvals, would reduce government bureaucracy, increase efficiency, and alleviate confusion among M/WBE firms about the certification process.  It will help increase low M/WBE certification numbers across levels of government and enhance opportunities for M/WBEs with the City and surrounding municipalities, as well as with the State and Federal government.

Conclusion

New York City has taken positive steps over the past few years to increase City contracting with minority and women-owned firms, but despite these efforts, the City’s spending with M/WBEs has not increased in a meaningful way. As a result, the City has earned three D-range grades in a row in the Making the Grade report.  As stated previously—it will take 84 years for Latino families and 228 years for Black families to reach wealth parity with White families at the current rate.  This glacial pace of change is detrimental to the fiscal health of our City, local economic growth, and to our communities.

A more robust, strategic approach is needed to hasten the pace of change, and this will require a significant investment by the City. The City must implement strategies to not only drive substantial increases in M/WBE utilization, but to help minority- and women-owned firms grow and scale, becoming larger engines of job creation. This is good for public procurement – ensuring competition and efficiency, through a larger pool of qualified vendors, and will also help to combat high levels of unemployment and poverty that have plagued our communities for too long.

New York City’s public procurement should be fair, inclusive and equitable.  It should promote economic growth and opportunity across the five boroughs, and reflect the vibrancy and diversity of the businesses and residents that power our great city.


Endnotes

[i] U.S. Census Bureau.  “Statistics for All U.S. Firms by Industry, Gender, and Race for the U.S., States, Metro Areas, Counties and Places: 2012.” 2012 Survey of Business Owners (SB1200cCSA01). Of the estimated 1,050,911 firms in New York City, 539,447 self-identified as being owned by minorities, and 413,899 self-identified as being owned by women.  The two are not mutually exclusive.

[ii] Mayor’s Office of Contract Services, “Annual Procurement Indicators: Fiscal Year 2016,” available: http://www1.nyc.gov/assets/mocs/downloads/pdf/IndicatorsReport/2016AgencyProcurementIndicators.pdf;

In FY16, the City entered into $15,320,105,800 worth of contracts, of which $609,277,000 were prime contacts with M/WBEs.  Additionally, $118,930,800 of subcontracts were awarded to M/WBEs, resulting in 4.8% of FY16 procurements going to M/WBEs.

[iii] http://www.checkbooknyc.com; According to Checkbook NYC data, 994 M/WBE vendors received payments from the City as prime contractors for good and services procured in FY16.

[iv] Mayor’s Office of Contract Services, “Annual Procurement Indicators: Fiscal Year 2016,” available: http://www1.nyc.gov/assets/mocs/downloads/pdf/IndicatorsReport/2016AgencyProcurementIndicators.pdf

[v] Please see footnote 2.

[vi] Mayor’s Office of Contract Services, “Annual Procurement Indicators: Fiscal Year 2015,” available: http://www1.nyc.gov/assets/mocs/downloads/pdf/IndicatorsReport/2015%20Agency%20Procurement%20Indicators.pdf; OneNYC: Minority and Women-Owned Business Enterprise Bulletin (Sep. 2015), available: http://www1.nyc.gov/assets/mocs/downloads/pdf/MWBEReports/OneNYC%20MWBE%20Bulletin%20FY2015.pdf; The MOCS Annual Procurement Indicator Report states that FY 2015 procurement by mayoral agencies equaled $13,790,520,900. The OneNYC M/WBE Bulletin found that FY 2015 procurement by mayoral agencies with M/WBEs totaled $725,223,647. While the Bulletin also notes that non-mayoral agencies, authorities, boards and commissions contracted for $893 million in additional spend with M/WBEs for a total of $1,618,103,913 in citywide M/WBE procurement in FY 2015, those dollars are excluded for the purpose of calculating the M/WBE share of City procurement since the City did not release a total procurement budget that includes non-mayoral agencies.

[vii] Mayor’s Office of Contract Services, “Annual Procurement Indicators: Fiscal Year 2013, available:, http://www1.nyc.gov/assets/mocs/downloads/pdf/Fiscal%202013%20Procurement%20Indicators%20complete%20text%2010%2021_for%20web.pdf; In FY13,  2.7 percent of the City’s procurement spending went to MWBEs.

Mayor’s Office of Contract Services, “Annual Procurement Indicators: Fiscal Year 2014, available: http://www1.nyc.gov/assets/mocs/downloads/pdf/Fiscal_2014_Annual_Indicators_Report.pdf; In FY14, 3.9 percent of the City’s procurement spending went to MWBEs.

[viii] Please see footnote 2.

[ix] http://www.checkbooknyc.com; According to Checkbook NYC data, 994 M/WBE vendors received payments from the City as prime contractors for good and services procured in FY16.

http://mtprawvwsbswtp1-1.nyc.gov/Home.aspx; According to the online directory of certified M/WBEs, there are 4,527 certified M/WBEs as of 8/22/16.

[x] U.S. Census Bureau.  2010-2014 American Community Survey, 5-Year Estimates: Race and Ethnicity; Of the estimated 8,354,889 people living in New York City, 5,619,807 identified as a race and Ethnicity other than White alone.

[xi] https://www.americanprogress.org/wp-content/uploads/2012/08/UnequalEduation.pdf

[xii] http://www.bls.gov/news.release/empsit.t02.htm; and http://www.bls.gov/news.release/empsit.t03.htm

[xiii] https://www.fdic.gov/householdsurvey/2013report.pdf

[xiv] http://www.epi.org/publication/income-inequality-in-the-us/#epi-toc-3

[xv] Economic Policy Institute unpublished analysis of Current Population Survey microdata, basic monthly survey, various months. Unemployment rates estimates are based on the average unemployment rate for each group over the 12-month period from July 2015-June 2016.

[xvi] U.S. Census Bureau, 2015 American Community Survey 1-Year Estimates (S1703)

[xvii] http://www.mbda.gov/sites/default/files/DisparitiesinCapitalAccessReport.pdf

[xviii] http://www.mbda.gov/sites/default/files/DisparitiesinCapitalAccessReport.pdf

[xix] http://www.mbda.gov/sites/default/files/DisparitiesinCapitalAccessReport.pdf

[xx] http://www.ips-dc.org/wp-content/uploads/2016/08/The-Ever-Growing-Gap-CFED_IPS-Final-1.pdf

[xxi] http://www.mbda.gov/sites/default/files/DisparitiesinCapitalAccessReport.pdf

[xxii] http://www.ips-dc.org/wp-content/uploads/2016/08/The-Ever-Growing-Gap-CFED_IPS-Final-1.pdf

[xxiii] Please see footnote 1.

[xxiv] http://www.mbda.gov/sites/default/files/2012SBO_MBEFactSheet020216.pdf; and http://www.mbda.gov/sites/default/files/FactSheet-Minority-OwnedFirms.pdf

[xxv] http://scorecard.assetsandopportunity.org/latest/measure/business-value-by-race

[xxvi] http://www.mbda.gov/pressroom/publications/executive-summary-disparities-capital-access-between-minority-and-non-minority-businesses

[xxvii] One survey of Chicago small businesses found that 60 percent of minority-owned firms employed more than 75 percent minority employees, while only 15 percent of White-owned firms do the same. U.S. Census Bureau Characteristics of Business Owners database, 1996.

[xxviii] Mayor’s Office of Contract Services, “Annual Procurement Indicators: Fiscal Year 2016,” available: http://www1.nyc.gov/assets/mocs/downloads/pdf/IndicatorsReport/2016AgencyProcurementIndicators.pdf

[xxix] City of Richmond v. J. A. Croson Co. 488 U.S. 469 (1989); The Supreme Court ruled that in order to establish an M/WBE program, a municipal government needs to show statistical evidence of a disparity existing between businesses owned by men, women and persons of color.

[xxx]http://www.nytimes.com/1992/02/11/nyregion/dinkins-plan-gives-minority-concerns-more-in-contracts.html; Dinkins declared that M/WBEs received only 7 percent of the $2.3 billion in contracts reviewed in the study.

[xxxi] http://www.nytimes.com/1994/01/25/nyregion/giuliani-revamps-minority-program-on-city-contracts.html

[xxxii] In Matter of Seabury Construction Corp. v. Department of Environmental Protection (“DEP”), 160 Misc. 2d 87 (Sup. Ct. N.Y. County 1994)

[xxxiii] http://legistar.council.nyc.gov/View.ashx?M=F&ID=665596&GUID=DD91681B-1401-4DF8-8F55-6A06AAF0C5E1

[xxxiv] http://www.nyc.gov/html/ddc/downloads/pdf/obo/law05129.pdf

[xxxv]http://www1.nyc.gov/assets/mocs/downloads/pdf/Fiscal%202013%20Procurement%20Indicators%20complete%20text%2010%2021_for%20web.pdf

[xxxvi] http://legistar.council.nyc.gov/View.ashx?M=F&ID=2375736&GUID=327B6D05-3876-4522-B09C-45B75CE54AB1;

The new participation goals outlined in Local Law 1 of 2013 (and that form the framework for the agency grades issued in this report) are based on the updated disparity analysis conducted by the Mayor’s Office of Contract Services in 2011: http://legistar.council.nyc.gov/View.ashx?M=F&ID=2262141&GUID=A43AAEF2-26EA-4033-887F-A035ADC0B967

[xxxvii] http://www1.nyc.gov/office-of-the-mayor/news/652-15/de-blasio-administration-over-1-6-billion-minority-women-owned-business

[xxxviii] http://www.nyc.gov/html/sbs/html/pr/2015_02_06_Online_Certification_Portal.shtml

[xxxix] http://www1.nyc.gov/assets/mocs/downloads/pdf/ppb/Micropurchases%20Amendment%20-%20Rule%20-%201-29-16.pdf

[xl] http://www1.nyc.gov/assets/mocs/downloads/pdf/ppb/Amendment%20of%20Public%20Notice%20-%20Rules%20-%201-29-16.pdf

[xli] http://www.nycedc.com/opportunities/opportunity-mwdbe/constructnyc

[xlii] http://www1.nyc.gov/office-of-the-mayor/news/775-16/mayor-de-blasio-bold-new-vision-the-city-s-m-wbe-program#/0

[xliii] http://www1.nyc.gov/office-of-the-mayor/news/775-16/mayor-de-blasio-bold-new-vision-the-city-s-m-wbe-program#/0

[xliv] http://www1.nyc.gov/office-of-the-mayor/news/775-16/mayor-de-blasio-bold-new-vision-the-city-s-m-wbe-program#/0

[xlv] Assembly bill A08044 (6/5/15) introduced by Assembly Member Bichotte and Senate bill S05924-A introduced by Sanders (6/12/15);

[xlvi] Assembly bill A09740 (4/5/16) introduced by Assembly Member Bichotte

[xlvii] Int. 923-A – Local Law 109

[xlviii] Int. 976-A – Local Law 113

[xlix] Int. 981-B – Local Law 114

[l] Int. 1005-A – Local Law 116

[li] Int. 1019-A – Local Law 117

[lii] Int. 1020-A  – Local Law 118

[liii] Please see footnote 2.

[liv] Please see footnote 6.

[lv] Please see footnote 2.

[lvi] U.S. Census Bureau. “Statistics for All U.S. Firms by Industry, Gender, Ethnicity, and Race for the U.S., States, Metro Areas, Counties, and Places,” 2007 Survey of Business Owners, (SB0700CSA01). 403,812 firms self-identified as being owned by minorities in New York City in 2007;

U.S. Census Bureau.  “Statistics for All U.S. Firms by Industry, Gender, and Race for the U.S., States, Metro Areas, Counties and Places: 2012.” 2012 Survey of Business Owners (SB1200cCSA01). 539,447 firms self-identified as being owned by minorities in New York City in 2012.

[lvii] U.S. Census Bureau. “Statistics for All U.S. Firms by Industry, Gender, Ethnicity, and Race for the U.S., States, Metro Areas, Counties, and Places,” 2007 Survey of Business Owners, (SB0700CSA01).  305,198 firms self-identified as being owned by women in New York City in 2007;

U.S. Census Bureau.  “Statistics for All U.S. Firms by Industry, Gender, and Race for the U.S., States, Metro Areas, Counties and Places: 2012.” 2012 Survey of Business Owners (SB1200cCSA01).  413,889 firms self-identified as being owned by women in New York City in 2012.

[lviii] Please see footnote 1.

[lix] Maya Wiley, Counsel to the Mayor, Testimony from New York City Council Committee on Small Business Oversight Hearing, Implementation of the City’s Minority and Women-Owned Business Enterprise Program, 12/15/15;

http://legistar.council.nyc.gov/View.ashx?M=F&ID=4190065&GUID=37678A9F-C8D3-40B8-ADFD-F58FFD9EB0DA

[lx] http://mtprawvwsbswtp1-1.nyc.gov/Home.aspx; According to the online directory of certified M/WBEs, there are 4,527 certified M/WBEs as of 8/22/16. Businesses can be classified as both MBEs and WBEs.

[lxi] Please see footnote 9.

[lxii]http://comptroller.nyc.gov/reports/audit-report-on-the-new-york-city-department-of-housing-preservation-and-developments-administration-of-the-minority-and-women-owned-business-enterprise-program/; and

http://comptroller.nyc.gov/reports/audit-report-on-the-new-york-city-department-of-design-and-constructions-administration-of-the-minority-and-women-owned-business-enterprise/

[lxiii] While Local Law 1 compliance reports measure progress towards goals in agency utilization plans, they are based on projected spending off the registered value of contracts that can often span multiple years, rather than actual spending with M/WBEs, which is a less meaningful measure of success.

[lxiv] http://www.nycsca.org/MWLBE/Overview; and http://web.mta.info/sbdp/

[lxv] http://www.nycsca.org/MWLBE/Overview

[lxvi] http://council.nyc.gov/html/budget/2017/ex/sca.pdf

[lxvii] New York State Leads the Nation, Presentation to Congressman Charles B. Rangel and Congressman Gregory W. Meeks [Brochure]. (2016) New York, NY: Metropolitan Transit Authority; News and Information on the MTA Small Business Development Program [Brochure]. (2016) New York, NY: Metropolitan Transit Authority