May 9 (Bloomberg) -- More than a decade after Los Angeles started trying to sidestep California’s affirmative action ban, firms owned by white men won 92 percent of the $2.1 billion in contracts awarded by the city, though they’re just 14 percent of the population.
A diversity program in place since 2001 has had little impact because it’s rarely enforced, according to critics and city officials. Mayor Antonio Villaraigosa, elected in 2005, has called it “absolutely insufficient.” A compliance scorecard for 2012 detailed how the second-most populous U.S. city fell short of its own goals for bringing female and minority contractors to 22 percent.
The struggle to shake up the status quo in Los Angeles -- which has the second-highest share of minority residents of the 10 largest cities, at about 71 percent -- underscores the power of prohibitions against preferences for women and traditional minority groups.
With 1996’s Proposition 209, California became the first state to outlaw gender and race preferences, inspiring bans in Washington, Michigan, Nebraska and Arizona. The U.S. Supreme Court is considering Michigan’s law in a college case that may affect state prohibitions against factoring in race and ethnicity in hiring, contracting and university admissions.
In Los Angeles, the city hasn’t been aggressive enough in finding ways around state law, said Tim Lohrentz, who has studied contracting for the Insight Center for Community Economic Development in Oakland, California.
While “Los Angeles has in some ways a really innovative policy,” Lohrentz said, “at the implementation level, it’s really varied and not very well done.”
There is no national census of contractors broken down by race, ethnicity or gender, according to the National Association of Minority Contractors.
The city requires agencies to set diversity goals and their main contractors to document good-faith efforts to reach out to nonwhite, non-male subcontractors.
“We laughingly call it the ‘good-fake’ effort,” said Beverly Kuykendall, an African-American who owns a consulting business and is on the board of the Southern California chapter of the National Association of Minority Contractors.
Los Angeles has to force the hands of companies that win the biggest jobs, Kuykendall said. “Only if there’s a pain point will some of these prime contractors make an effort.”
About 100 miles to the south, San Diego, with a non-Hispanic white population of 45 percent, has achieved results by mandating that a certain amount of contract work go to small businesses. The system has pulled in women and minorities without creating a bureaucracy that targets them directly. Lohrentz called it “very simple” and easy to police.
To give the Los Angeles program some teeth, Villaraigosa in January opened a $400,000-a-year Office of Contractor Relations. The outreach program had operated until then without a city agency designated to manage and enforce it.
Los Angeles started the outreach program in 2001, four years before Villaraigosa, a Democrat and the first Hispanic mayor since 1872, took office. It requires departments and prime contractors to let minority- and women-owned firms know when city work is available and what they need to do to qualify and apply. Departments must track their contracts by race and gender and report the information to the mayor’s office.
In October 2010, the program was called “dysfunctional” in a survey by the National Association of Women Business Owners’ Los Angeles chapter. The 1,004 respondents gave the city’s good-faith effort rules a grade of 1.8 on a scale of 1 to 4, according to the survey.
Three months later, Villaraigosa created the Business Inclusion Program, which advertises opportunities on a website and formalized the process for prime contractors to include in their bids minority- and women-owned firms as subcontracting candidates. More than two years later, Villaraigosa said he was disappointed most city work was still going to a cohort that “doesn’t reflect in any way our city’s diversity.”
For all the new initiatives launched, there wasn’t enough follow-up, according to Kuykendall.
In the most recent reporting period of January through March, 23 of 34 city departments -- among them some of the biggest, including police and fire -- failed to submit the required reports, the city’s online tally of compliance scorecards shows.
While the city can penalize contractors by refusing to allow them to make future bids if they fail to make the required outreach to potential subcontractors, it hasn’t yet done so, said Kecia Washington, managing director of Villaraigosa’s Office of Business and Economic Policy.
Washington said the city will soon begin aggressive enforcement now that the mayor has established the new office to oversee outreach efforts.
City Controller Wendy Greuel found “general compliance” with the outreach requirements among five city departments scrutinized in a June 2012 audit.
At the same time, the controller, a candidate to succeed Villaraigosa in the May 21 election, concluded it was impossible to gauge the program’s effectiveness because the city wasn’t collecting enough data. She noted officials weren’t enforcing compliance with outreach requirements.
Neither Greuel nor her opponent, City Councilman Eric Garcetti, have made city contracting policy a campaign issue.
In an e-mailed statement, Greuel said that as mayor she would “work towards the goal of having all of these contracts be subject to the program’s requirements.” Garcetti said in an e-mailed statement that he would take similar steps, focusing “on aggressive outreach and streamlining the process.”
While Los Angeles’s proportionately low use of minority-and women-owned contractors doesn’t reflect their scarcity in the region, it isn’t the city’s job to do anything about it, said Ward Connerly, a former University of California regent who wrote the California law and pushed for other bans.
“There are a lot of people who have the view, myself included, that we don’t need to engage in tinkering in the market,” Connerly said. “I don’t favor propping up businesses through the use of race.”
Of the $2.1 billion in Los Angeles city contracts last year, about 6 percent went to minority-owned firms, below the 18 percent goal, its scorecard indicated. Another 2 percent went to women-owned firms, while the aim was 4 percent.
Less than 1 percent went to companies owned by disabled military veterans, compared to a target of 3 percent. And about 5 percent went to businesses classified as small, well shy of the 25 percent objective.
The combined share of women- and minority-owned contractors increased to 8.3 percent from 7.0 percent a year earlier, according to city data.
About 29 percent of Los Angeles’ 3.8 million residents are non-Hispanic white, and slightly less than 50 percent are male, according to the 2010 U.S. Census.
San Diego began awarding so-called preference points to contractors classified as small and emerging in 2010. Such businesses received 23.7 percent of construction contracts in the year ended June 30, 2012, up from 12.9 percent the year before, according to San Diego’s business diversity report card.
Minority- and women-owned firms accounted for 10.8 percent of municipal contracts last year.
In New York, not covered by an affirmative action ban, 7.1 percent of $4.5 billion in contracts subject to racial and gender preferences went to firms owned by minorities and women in the year that ended in June 2012, according to a city report card. A year earlier, such firms accounted for 5.1 percent of contracts. New York had a total of $10.5 billion in city contracts last year, the report card indicated.
Under state law, New York can’t consider ownership in awarding prime contracts, which must go to the “lowest responsive and responsible bidder,” said Merideth Weber, spokeswoman for the Department of Small Business Services.
New York is working to overcome “significant challenges” to meeting its goals, the report by Mayor Michael Bloomberg’s Office of Contract Services said. Bloomberg is the founder and majority owner of Bloomberg News parent Bloomberg LP.
A 2005 New York law set diversity benchmarks for contracts under $1 million, with firms owned by African Americans, for example, targeted for 12.63 percent of construction contracts and those owned by white women for 16.5 percent of contracts for professional services.
In Los Angeles, the new city office will monitor progress toward the outreach goals, help resolve disputes between departments and contractors and enforce compliance, according to the executive directive Villaraigosa signed in January.
“There’s no question that Proposition 209 has had a negative impact on minority contracting,” Villaraigosa said then. “It has had a serious negative impact on opportunity in California.”
To contact the reporter on this story: James Nash in Los Angeles at email@example.com