Testimony of New York City Comptroller Brad Lander at the New York City Council Joint Hearing of the Committee on Contracts and Committee on Transportation and Infrastructure

Thank you Chair Brooks-Powers and Chair Won, and Members of the Transportation & Infrastructure and Contracts Committees, for the invitation to testify today.

We appreciate the opportunity to join this important discussion about how New York City can advance equity as we build the infrastructure required for a more just and resilient future for all New Yorkers. As the City’s chief financial and accountability officer, I take seriously the responsibility of digging into the data and being honest about what we find.

My office recently released a report on the racial wealth gap in New York, which highlighted the stark disparities between white and black New Yorkers. We found that the median household net worth of white New Yorkers is $276,900, nearly 15 times that of the median Black household, at $18,870. The numbers are comparable for Hispanic families. New York State has a wider racial wealth gap than the United States as a whole.

We find that these racial wealth gaps are perpetuated through continuing patterns of discrimination in homeownership, in education, in student loans, in investment holdings, in retirement security – and in City procurement.

Contracting is a powerful tool to achieve New York City’s priorities – it’s how we build our schools, repair our roads, upgrade our parks, protect our water supply, provide meals to home-bound seniors, childcare and afterschool programs for our kids, and so much more. This past fiscal year, the City spent roughly $40 billion on contracts for everything from office supplies to human services to technology projects to the construction of large-scale infrastructure projects.

If these contracts were distributed equitably, proportionately to our population in a city where 29% of the population is Latino or Hispanic, 20% is Black, 16% are Asian, and more than 50% are women, they would be an enormous force for reducing those wealth gaps and sharing prosperity more broadly. Sadly, of course, that has not been the case. Despite decades of efforts, disparities in the City’s procurement continue to exacerbate racial and gender disparities, rather than narrow them.

Today, our office is releasing our Annual Report on M/WBE Procurement for FY 2023. The report measures M/WBE utilization in compliance with Local Law 174 of 2019, which authorized the City’s current M/WBE program by requiring City agencies and elected offices to establish contracting goals that ensure a more meaningful share of their contracts are awarded to M/WBEs. We also evaluate the City’s work to move the needle in the direction of greater equity and make concrete recommendations for reform.

Overall, we find that while the Adams Administration, led by Chief Business Development Officer Michael Garner, has made meaningful efforts that have resulted in some progress on prior recommendations, City agencies continue to fall woefully short.

• M/WBEs continue to win only a very small share of City contracts. M/WBEs accounted for only 3% of the value of all new City contracts and purchase orders registered in FY23 (compared with 5.2% in FY22), and just 9.8% of the narrower universe of City contracts and POs subject to M/WBE participation goals under LL 174, which make up about one quarter of the City’s total procurement (down from 16% in FY22).
• The value of contracts with Black, Hispanic, or women-of-color owned businesses each hovers at just 1%.
  • Only 1.16% of the value contracts and POs subject to LL 174 participation goals were registered to Black M/WBEs, and only 0.96% to Hispanic M/WBEs.
  • Only a combined 1.03% of the value of contracts and POs subject to LL 174 participation goals were registered to businesses owned by women of color (and more than half of these were registered to businesses owned by Asian American women). Male-owned MBEs account for nearly 8 times the count of registered contracts and POs than women-owned MBEs.
• M/WBEs are winning more contracts, but those contracts are, on average, for a small fraction of the value of the contracts won by firms owned by white men. M/WBEs accounted for 61.8% of the total number of new contract registrations and POs subject to LL 174 participation goals in FY23 (up slightly from 58.5% in FY 22). However, the average value of a new contract registered in FY23 to a non-certified firm was $4.6 million, over nine times larger than the average value of a new contract registered to a M/WBE, which was just $511,000.
• Most M/WBEs registered with the City don’t benefit from City contracting. In FY23, only about 20% of City-certified M/WBEs had a contract, PO, or approved subcontract registered by the City.
• More than half of contracts awarded to M/WBEs are registered late. Approximately 61% of M/WBEs contracts registered in FY23 were retroactive. This is a particular challenge for smaller firms without sufficient working capital to endure long wait times for payment.

In addition to providing analyses of the overall state of City procurement with M/WBEs, the Report provides a snapshot for each agency. Utilizing a new overall performance metric developed to account for difference among agencies, we examine the relative performance of agencies in doing LL 174-elgible business with M/WBEs as compared to their peers with similarly sized LL portfolios. In FY23:

• Among agencies with large LL 174-eligible contracting portfolios, the Department of Environmental Protect (DEP) was ranked first and the Department of Transportation (DOT) was ranked last. The Office of Technology and Innovation (OTI) had the most relative improvement from FY22.
• Among agencies with moderate LL 174-eligible contracting portfolios, the Department of Homeless Services (DHS) was ranked first and the Department of Citywide Administrative Services (DCAS) was ranked last. DHS also had the most relative improvement from FY22.
• Among agencies with small LL 174-eligible contracting portfolios, the Law Department (LAW) was ranked first and the Department of Finance (DOF) was ranked last. LAW also had the most relative improvement from FY22.
• Among agencies with micro LL 174-eligible contracting portfolios, the Comptroller’s Office (COMP) was ranked first and the Civilian Complaint Review Board (CCRB) was ranked last. The Business Integrity Commission (BIC) had the most relative improvement from FY22.
• The Department of Education (“DOE”) is a non-mayoral agency and previously was not subject to LL 174 participation goals. However, in FY23 DOE’s Procurement Policy and Procedures were amended to implement a M/WBE goals program consistent with LL 174. FY23 is the first fiscal year in which the procurement rules were legally effective. M/WBEs accounted for 8.92% of DOE prime contract and PO registrations subject to participation goals.

M/WBE utilization also varies the industry. The challenges are particularly notable on construction contracts, which really speaks to the focus of today’s hearing. While an impressive 63.6% of the value of contracts for goods went to M/WBEs, and a respectable 21.6% of contracts for professional services, only 7.5% of construction services prime contract registration value went to M/WBEs.

This is particularly troubling on very large capital construction projects. By far the largest single contract entered into by a City agency in FY23 was the $3 billion contract entered into by the Department of Design and Construction, with a non-certified firm, for the design-build construction of the Brooklyn borough-based jail. This contract has a 30% M/WBE utilization goal, which if realized would deliver $900 million to M/WBE subcontractors; however, less than a year into the 6-year contract term, M/WBEs account for just 1% of the value of approved subcontractors.

Subcontracting should be a source of significant contract value for M/WBEs, especially on construction projects, where much of the value flows to subcontractors. Prime contracts in the construction industry accounted for about 70% of the subcontract records that were visible to our Office via the Payee Information Portal (PIP) for our FY23 report. Unfortunately, the pervasive underutilization of subcontract data in the Payee Information Portal, or PIP, is a giant barrier to making this happen. Mayoral agencies approved subcontract records against just around ~13% of the 2,927 LL 174-eligible prime contracts registered in FY23 at the time the data for this report was pulled from FMS.

Last year’s report discussed the gaps in the City’s ability to effectively monitor participation goals set on prime contracts. As a result, the City is not only unable to assess compliance with the requirements set forth in LL 174, but it also is unable to measure the utilization of M/WBEs at the subcontract level where most participation goals are set to be achieved. The goal-setting process remains onerous, the subcontractor tracking system has not been digitized for transparency, and reporting processes remain paper-based–all of which remain a barrier for meaningful M/WBE utilization.

The Report also evaluates the Adams Administration’s efforts to move the needle. It finds meaningful effort, some progress on the recommendations we made last year in the FY22 report, and substantial areas for continued improvement.

Working with the Capital Process Reform Task Force, which we were proud to be a member of, City Hall successfully lobbied in Albany to raise the M/WBE Noncompetitive Small Procurement method threshold to $1.5 million, a significant victory. We were happy to work with the Administration to quickly operationalize and implement this threshold change to allow M/WBEs a greater ability to compete for larger contracts.

The Task Force was also successful in getting the State Legislature to pass a law facilitating the expansion of the City’s construction mentorship programs, as well as legislation that lower prohibitively high insurance requirements. These changes will greatly support the ability of M/WBEs to build the capacity to be more competitive for large contracts.

Some progress has been made since last year by City Hall in establishing more pre-qualified lists, utilizing “best value” procurement, achieving higher dollar use of M/WBE NCSP, directing micro-purchases to M/WBEs, updating training and guidance to agencies, and making relevant date more easily accessible.

No progress was made reforming the subcontracting process, validating commodity codes to agencies can find the right M/WBEs, or improving the timeliness of contract registration.

The FY24 report also offers new recommendations to the Administration:

• Streamline connections between M/WBEs and agencies. Strengthen the tools to connect M/WBEs to appropriate contracting opportunities, by standardizing commodity code selection and searches across agencies procuring similar goods & services.
• Survey underutilized firms. Understanding the reasons most certified M/WBEs do not engage in business with the City is essential for implementing targeted improvements and enhancing the effectiveness of M/WBE participation programs.
• Strengthen goal-setting procedures, support, and oversight. The City must establish and enforce standardized expectations for setting goals and monitoring compliance for all eligible contracts, including for contract changes and modifications.
• Increase utilization of M/WBE subcontractors in human services contracting. The City should increase M/WBEs participation in the human services sector, through prime contracting and especially through more effective subcontracting processes.

I want to acknowledge and speak briefly to Intro 23 of 2024, sponsored by Chair Brooks-Powers, which would require the Comptroller to perform an annual audit of M/WBE procurement. I applaud the intent of the proposed legislation to ensure transparency and accountability, recognizing that the current report is voluntary, and would not by required to be continued by future Comptrollers. As witnessed by the report we are issuing today, our office, through our contract review, access to FMS and Checkbook NYC, and related oversight powers, is well positioned to conduct this important work. We welcome feedback on the report, including suggestions for how we can make it even more useful. With that said, our office has concerns about the specific language of the bill, and we look forward to further discussion with the sponsor about how to best achieve our shared goals.

Finally, in addition to analyzing all this contract data, we organized a series of roundtable discussions in neighborhoods around the city (in East New York, Jamaica, the Northeast Bronx and the North Shore of Staten Island) to hear directly from a wide array of M/WBE business owners about the challenges they faced at various steps in the process. While there was a lot of frustration about pain points, there was also a lot of hope that New York City government could figure out better ways to invest more equitably in our future.

Thank you very much for this opportunity to testify, to present our FY 2023 M/WBE Annual Report, and to share these voices of hard-working and diverse business owners looking for a fair opportunity to contract with the City of New York.

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