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Minority business program to undergo changes

It wasn't always easy for Tracey Rhoten to make inroads in the male-dominated construction industry as a female executive of a concrete company.

But being a state-certified minority business has helped create more opportunities for her firm, Aaron's Concrete Pumping in Eldersburg. That distinction has gotten her subcontracting jobs on state-funded construction projects since 2009 and has led to a 25 percent increase in revenue, said Rhoten, who founded the firm with her brother in 2003.

Now, Rhoten is afraid proposed legislation that would eliminate statute-mandated goals of awarding a certain percentage of Maryland state contract dollars to African-American- and women-owned businesses would hurt her firm and others.

"It created an opportunity for us to be at a level playing field," Rhoten said. "Once we were given the opportunity, we've done a great job. We've developed good relationships with companies. My fear is without the subgoals, will they [revert] back to what they were doing before? I hate to say it was a good-old-boys network, but it was."

The change in the program has reopened a larger debate over its effectiveness and how it should be improved. Although the state's Minority Business Enterprise program has come under scrutiny in recent years, state officials and supporters say it is still necessary because disparities continue to exist.

The proposal, supported by Gov. Martin O'Malley, would repeal for one year the state's annual goal of awarding 7 percent of state contracting dollars to African-American firms and 10 percent to women-owned businesses.

It would, however, maintain the state's annual goal at 25 percent for minority participation in state contracts. There are no penalties for agencies that fail to meet these nonbinding targets.

While the state reached the 25 percent goal last February and Gov. Martin O'Malley said last year that the state was on track to finish the most recent fiscal year at that level, the program still fell short. The state has yet to achieve those benchmarks set about a decade ago.

The proposal has sailed through the General Assembly with little opposition, and O'Malley is expected to sign it. Supporters say the change gives the state flexibility and could encourage minority businesses to get a bigger share of state contracts.

Supporters also argue that the state needs time to ensure that any participation goal set aside for either African-American- and female-owned businesses is not arbitrary but fair.

To that end, any goal for a specific group needs to meet legal standards based on recent court decisions and a new 600-page, state-commissioned disparity study on state procurements, which was released in mid-February, according to the state. The study, conducted by NERA Economic Consulting, found "substantial evidence" of disparity in state contracting and procurement even with the MBE program.

For those reasons, state officials asked for the change and a one-year extension of the program to determine whether more adjustments are necessary, said Luwanda W. Jenkins, special secretary of the Governor's Office of Minority Affairs. State lawmakers, who have historically extended the program on a five-year basis, will have to take up the issue again at next year's General Assembly session.

"We like to create a more flexible program that will allow us to adjust goals as the statistics in our disparity study [call] for and zero in and focus on areas where we're not seeing the greatest level of participation, while at the same time not constrain the areas where it's been successful," Jenkins said.

But Arnold Jolivet, president of the American Minority Contractors and Businesses Association, opposes the state's plans to repeal goals specific to each group, arguing that doing so would endanger the state's program.

"When you create a program where there are no separate, distinct benchmarks for each identified gender and racial group that's part of the statutory scheme, it makes it very easy for one group to get the lion's share of the contract benefits over the other group," Jolivet said. "One of the things that the court has said is there ought to be some provisions to make sure the benefits are shared on a fair and equitable basis."

Maryland's program, which dates to 1978, is considered the oldest in the country. The state also has the nation's most aggressive goal, according to Jenkins.

But the state has fallen short of the 25 percent goal since that target was established in 2001, along with subgoals set aside for African-American- and women-owned businesses. And the program has faced legal challenges, with the state contesting a lawsuit pending in U.S. District Court in Maryland.

In the most recent fiscal year ending in June, the state's minority- and women-owned firms received about 23 percent, or $1.4 billion, of the overall $6 billion spending. That's a slight uptick from 22 percent in the previous fiscal year, according to the state.

During the same period, African-American- and female-owned businesses have received 5 percent to 6 percent of state procurement dollars, according to the state. Other groups participating in the MBE program include Asian-Americans, Hispanics, Native Americans and business owners who are physically or mentally disabled.

Del. Dan K. Morhaim, a Baltimore County Democrat who is the lead sponsor of the House proposal, said setting specific goals for African-American- and women-owned businesses created "artificial expectations."

Rather than maintaining those hard targets, Morhaim said the proposal allows state officials to set contract goals on a case-by-case basis.

"That's flexible and fair, and the process is open and not structured in statute that applies across the board to everybody," he said. "It's a very reasonable way to go because the whole bill sunsets after one year. Everyone gets a chance to revisit this in nine months."

The Governor's Office of Minority Affairs will work with the Maryland Department of Transportation, which manages the MBE program, to develop guidelines for state agencies on how to set goals specific to each contract.

Jenkins, of the state minority affairs office, said her agency has reached out to the minority business community about the program's changes, noting that she understands their concerns.

"We fail to realize that goals are great, but if you're not careful they can create situations that will limit growth and participation," she said. "Goals should not be looked at as ceilings but as floors."

Still, Jolivet questioned how the state plans to increase participation among African-Americans and women when it has yet to meet existing goals.

"I believe very strongly in my heart of hearts that if you eliminate subgoals for African-Americans and women that the program will fall back to where it was in 2001," said Jolivet, noting that women and black firms were getting a negligible portion of state contracting dollars then.

Jolivet said he was particularly disappointed that the legislative Black Caucus supported changes to the program.

But Democratic Sen. Catherine E. Pugh, who chairs the caucus, said the one-year extension gives the state time to improve the program and increase minority participation in state contracts.

"We have an opportunity to look at it again next year," she said. "We know the disparity study indicates the state has not at this point reached the goal as it relates to African-American and minority business enterprise participation. We're greatly concerned about that and we'll continue to be focused on that."

Maryland Minority Business Enterprise program participation

Fiscal year 2010

Statewide: 23.2 percent

African-American: 5 percent

Women: 5.5 percent

Fiscal year 2009

Statewide: 22.2 percent

African-American: 5 percent

Women: 5.9 percent

Source: Governor's Office of Minority Affairs

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