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Testimony to:
Senate Committee on Commerce, Economic Development and Small Business
and
Senate Committe on Labor

Minority and Women Owned Business Enterprise Program (MWBE)

Presented by
Johnny Evers, PhD
Director of Government Affairs

Wednesday, May 30, 2018

 

Good morning, I’m Johnny Evers, PhD, Director of Government Affairs for The Business Council of New York State, Inc. The Business Council is New York’s largest statewide employer advocacy association. We represent nearly 2,400 businesses employing over 1.2 million New Yorkers. Additionally, within our organization we operate the New York State Construction Industry Council (NYSCIC) comprised of the state’s leading construction, material and supply, heavy-highway and cement companies; engineering and architectural firms; and, construction-related trade associations totaling well over 475 members. On behalf of the Council, I would like to thank Senators Ritchie, Akshar and Boyle for hosting this hearing and providing a forum for the business community to provide information on New York State’s Minority and Women-owned Business Enterprise Program (MWBE).

First, I want to acknowledge that The Business Council has a long history of support for the state’s MWBE program and Article 15-A of the Executive Law. This program, developed with input from many members of The Business Council, is too important to let flounder in misinformation and misguided quick fixes. We are thankful that the program’s extension through December 31, 2019, adopted as part of the fiscal 2019 State Budget, afforded the state Senate the opportunity to host these forums to gather information on which to base sound and rational amendments to be included in a long-term extension of the MWBE statute.

As a starting point, it is essential to recognize that the primary purpose of the state’s MWBE program -- to address any historical discrimination, and resultant disparities in the awarding of state contracts -- is indeed a laudable one. But this cannot occur in a vacuum. Under the U.S Supreme Court’s 1989 decision, City of Richmond v. J.A. Croson Company, the Court determined that state and local governments engaging in such programs must base them on facts as ascertained by such studies. When disparities are identified they are then addressed by programs that both proscribe remedies and take into account current capacity within the MWBE sectors. Goals established in the aftermath of a disparity study must be crafted to address issues found in particular markets with an ultimate goal of decreasing any disparities within particular industries in regards to public procurements.

In 2010, New York State secured a disparity study upon which statewide goals as articulated in Executive Law were formed for minority and women-owned businesses: 22.75 percent of public construction contacts and 24.53 percent of all construction-related contracts. Without recounting the entire history of New York State’s MWBE program and the Executive Law, after goals had been established based on the 2010 disparity study, but prior to the release of a new disparity study, the Cuomo administration increased the goals for MWBE on public construction to 20 percent in 2012. The movement to 20 percent was permissible as a system-wide application under law provided individual contract goals were established. However, in 2014 Governor Cuomo again increased the MWBE goal to 30 percent. This was done without completion of a new disparity study nor taking into account state statute and regulations governing the MWBE program’s consideration of geography, capacity, and other aspects of 5 NYCRR 142.2 (d).

With the scheduled expiration of the Executive Law on December 31, 2018, New York State had to undertake a new disparity study several years in advance to gather fresh information upon which to renew Article 15-A, the MWBE program and set new goals based on current data. However, as stated above, the Executive unilaterally raised the state goals far in advance of a new study.

I am certain that many legislators have heard concerns regarding the Executive’s mandated 30 percent goals on state contracts, and the lack of data to support this significantly increased participation target. As the staff member responsible for construction issues at The Business Council, I can attest to the industry’s concerns regarding this application of the Executive Law. I would urge your committees to carefully review Executive Law Section 313, which elaborates on the participation goal-setting process, as well as the related section 5 NYCRR 142.2 (d) that specifically outlines the factors that must be taken into consideration in participation setting goals. These statutory provisions speak directly to the need for reliance on a disparity study as well as geographic location of the contract site, contractor availability, contractor data, and monetary size of contracts, among other factors. All must be considered by statute in setting participation targets. Since these factors seemed to have been ignored in determining a blanket, state-wide mandatory goal of 30 percent on contracts, it seems New York State is not following the key sections of the Executive Law amended after the 2010 disparity study such as industry capacity or the percentages articulated in law based upon a disparity study. Paramount to any goal is recourse to a disparity study based on the provisions in Croson, and a study of each contract in regards to the locations, capacity and other factors governing the MWBE program.

Even when disparity goals are properly set, there are occasions when they cannot be met despite good faith efforts and due diligence. Waivers are provided for in statute to address these circumstances. With many contract-specific goals set artificially high based on their geographic location (again the goals are not following rules and regulations taking into account local disparity), contractors find they cannot meet these goals, regardless of their outreach and advertising, and must seek waivers from the 30 percent goal. The waiver situation is a difficult one for contractors and illustrates the inherent problems of the goals.

Speaking specifically to the waiver issue, it must be noted that our members have stated that they have tried their best to comply with the 30 percent goal as established by the Executive. Time and again contractors state that they eagerly advertise in print, conduct outreach to the community, and enlist the help of Empire State Development in pursuing MWBE partners in their public works projects. When efforts have been exhausted they then apply for waivers based on their due diligence. In 2014, after the MWBE goal had been raised to 30 percent, many contractors stated that due to limited MWBE capacity they were forced to seek an increasingly higher number of waivers. This is an important aspect to note when compared with the 2016 Disparity Study. If the results of the 2016 Disparity Study claim that the universe of MWBE contractors and subcontractors exceeds 50 percent of the industry, wouldn’t it follow that each contract would be able to find the necessary MWBE participations to get to 30 percent. But, in fact, the opposite was true. Contractors were struggling to get to 30 percent, thus giving credence that the 2016 Disparity Study does not accurately reflect the true make-up of the construction industry.

In compliance with the Executive Law, a new disparity study was required to update the statute and the program. The study was released to the public in July, 2017, even though the finished report was received by the state in October, 2016. The 2016 study made several questionable claims, notably that 53.05 percent of prime contractors and 53.48 percent of subcontractors are MWBE firms. In questioning the study figures, we contacted our members in the construction industry who also expressed disbelief in the study findings. In further questioning of the study, it was revealed that some of the data was collected via Survey Monkey with an extremely low response rate. Again, the validity of the study can also be questioned by the number of waivers being sought, which should be unnecessary if MWBE firms in fact made up more than half of all construction firms. As noted above, many of our members stated they struggled to reach 30 percent even with broad public advertising and despite great efforts to seek contractors and suppliers within the MWBE community – both locally and regionally.

There are many questions that need to be answered prior to the Legislature renewing Article 15-A of the Executive Law. We have been supportive of industry efforts to generate additional information. For example, when Associated General Contractors of New York (AGC NY) began its attempt to find the data upon which various state agencies had been basing their MWBE goals, ultimately leading to a filing of an Article 78 lawsuit, The Business Council filed an amicus brief in support. The results of their litigation show that little study has gone into agency-specific goal setting. Additionally, we have joined industry efforts to seek greater input from the Legislature prior to adoption of the 2016 disparity study, and prior to any new amendments to Article 15-A without further data. To that end, we applaud the Senate for not accepting the Executive’s draft proposal for Article 15-A that included an acceptance of the 2016 disparity study. The Governor’s program bill would have moved the state even further from a workable and vibrant MWBE program to something almost unrecognizable to the state goals. The bill would impose the program – without local study – to municipalities and school districts, creating a 10 percent bid preference for MWBEs, and vesting ESDC with broad new powers. Having provided important background information, we would now like to provide several priority recommendations.

Since the Legislature has already adopted a short-term extension to insure the program continues through December 31, 2019, we would suggest that first, a new study be commissioned.  A new disparity study should be commissioned with that study’s goal based on the underlying principles of Croson.

Second, the Legislature should focus on addressing one of the issues that the construction industry has been seeking to rectify: increased MWBE capacity. The Business Council’s construction members have been eager to assist in building the capacity of the MWBE construction segment. We would welcome further assistance from the Legislature and New York State for workforce development. Construction training must be a part of that program. The MWBE program cannot be addressed without a careful look at the public procurement process and the state of the construction industry today. There are many barriers to entrance into, and success within, the construction industry. Access to capital and insurance, training, and mentorship are some of just a few issues facing MWBE firms.

Third, the legislature must take into account the various impediments to new entrants to the MWBE construction market place. I would be remiss if I did not point out the Scaffold Law as a prime impediment to access to insurance and the upward pressure on the cost of coverage -- if one can secure coverage at all in a shrinking market. New York State is the only state that adheres to an absolute liability standard rather than comparative negligence. Likewise, mandatory project labor agreements and apprenticeship requirements hamstring start-up MWBE firms who have limited access in these areas. As you can readily see, this issue has many moving parts, and is in need of your full attention.

Lastly, ESDC --, the agency responsible for the MWBE program -- should make greater efforts to assist the contracting community. Certification and re-certification of MWBE firms need to be expedited and the materials used to assist contractors such as web sites, lists, and pre-bid information needs to be updated and improved.

We have a unique opportunity to shape the future of New York’s vital efforts to promote MWBE contract participation, and we should make sure we take advantage of that opportunity. We welcome an open dialogue and encourage the Senate, Assembly and the Administration to engage in an informed, rational discussion of what can and needs to be done to promote a healthy MWBE program that benefits all parties.