Fulfilling a pledge to strengthen the state's use of minority-owned contractors, Gov. Robert L. Ehrlich Jr. announced yesterday a sweeping plan that includes having the state designate 10 percent of contracts so that only small businesses can compete for them, and reprimanding agencies that don't meet minority participation goals.
The changes also call for punishing contractors who use minority businesses as subcontractors but fail to pay them.
The governor also said that, for the first time, the Department of Housing and Community Development will have permission to issue taxable bonds to finance small-business loans.
The recommendations were among 50 issued by an 18-mem- ber commission, chaired by Lt. Gov. Michael S. Steele. The governor appointed the panel in June to review the state's program. He was prompted by a legislative audit that found the program had little or no accountability and that state goals weren't being met.
The state is required to award 25 percent of its contracts to minority-owned businesses. The audit found that, in 2002, agencies overstated their compliance by as much as 40 percent.
"We knew that the present system was implemented in good faith and conceptually was a good idea," Ehrlich said at a news conference in Annapolis. "We also know that that system has deep flaws."
Some of the proposals will require action by the General Assembly. Ehrlich said yesterday that several bills have been introduced. The day before the governor's report was released, several Democratic lawmakers announced that they had introduced a package of minority business legislation.
Ehrlich signed three executive orders yesterday that would establish a mentoring program between small and large businesses, create a task force to study centralizing the bidder registration system, and set up the Governor's Council for Historically Underutilized Businesses to continue the work of the commission.
He also beefed up the Office of Minority Affairs, the agency responsible for monitoring the minority business program. The agency's director, Sharon Pinder, was elevated to special assistant to the governor, with plans to have twice the budget and more staff than now.
The General Assembly created the Minority Business Enterprise program in 1978. Its goal was to have the state do 10 percent of its business with minority and women-owned companies. Over the years, the goal was raised. In 2001, it was increased to 25 percent from 14 percent.
But the program has been criticized for ineffectiveness. A legislative audit found that payments to minority businesses by the Maryland Port Administration were often less than half the amount for which they had contracted.
In hearings the commission held last year, businessmen and women described numerous problems - and lax state oversight and enforcement. Some said they teetered toward bankruptcy because white-owned contractors wouldn't pay them for their work as subcontractors. Others complained that contractors would list them as a subcontractor to get a state job, but never use them to do the work.
Several of the panel's recommendations aimed to add teeth to enforcement by terminating jobs of contractors who don't abide by the rules and giving added consideration to companies that have used minority subcontractors in the past.
A regulation already on the books that allows the state to report noncompliant companies to the attorney general for prosecution should be followed, the commission said.
By dedicating 10 percent of state contracts to small businesses, Steele said yesterday that these businesses would have the opportunity to be the prime contractor on projects, rather than subcontractors. When asked if it that could be viewed as an illegal set-aside program, Steele said the changes merely make it easier for small business to compete.
"We recognize some of these recommendations are controversial," Steele said. "We wanted to make sure people knew these recommendations were free of status quo complacency."
Minority business owners applauded the recommendations, with some caution.
"I think it was historic the protocol they established here today," said Raymond Haysbert Sr., owner of Forum Caterers in Baltimore and once chief executive officer of Parks Sausage Co. "But even if you establish protocol, it's the implementation that matters in the end."
Robert A. Jones, a lawyer and consultant in Baltimore, said the recommendations would be fruitless if small businesses aren't able to get financing.
Banks need to step forward, he said. Steele met with several bank executives last week to bring up the same issue.
"The verdict is still out," Jones said. "A plan is one thing. Implementation is another."