A $4 billion minority contracting program that places advocates for minority businesses in charge of regulating them is a clear conflict of interest, federal and state audits found, but one state has announced plans to expand its version to one of the most aggressive in the nation.
The conflict in the federal Department of Transportation’s program, which is administered by each of the states, occurs because civil rights personnel with an explicit mission to expand the number of minority contractors and the amount of taxpayer dollars awarded to them are the same people tasked with policing and banishing the bad actors.
“There’s no question, they are activists. They regard it as an important part of their job to expand the number” of certified disadvantaged businesses, said University of Maryland Baltimore County Professor George Lanoue.
As a Transportation Department inspector general’s report put it last month, states “place more emphasis on getting firms certified as” disadvantaged rather than keeping track of the work they do. The report said the Office of Civil Rights is responsible for certification, appeals and coordination of enforcement.
In Maryland, the same office that oversees federal minority contracts also runs a parallel program with even laxer restrictions to disburse state money to contractors. Last month, the governor's office announced it was raising that percentage from 25 percent to 29 percent, one of the highest in the nation.
Maryland’s minority contracting program differs from comparable programs in that it would rather give a contract to a black businessman from out of state than a taxpaying resident, with no requirement that participants in its preference program be based in the jurisdiction. One in five firms receiving a leg up in Maryland contracting competition is based outside Maryland, The Times’ analysis showed.
Harry Alfred, president of the Black Chamber of Commerce, said the civil rights offices let scofflaws run loose — but to call them advocates would overstate their usefulness.
“They don’t advocate, and they don’t police. It’s rife with corruption to the core,” he said. “I sent front companies to the DOT, and they rejected every one of my claims. What they should do is have a true police entity there.”
The federal report said the civil rights offices regularly failed to sanction wrongdoers — which critics noted would have put egg on their faces as those firms’ early advocates.
An audit last month of Minnesota’s program by state investigators illustrates the typical setup.
“One task of the Office of Civil Rights is to monitor the companies in the [Disadvantaged Business Enterprise] pool for those firms who no longer qualify as a DBE company. The other task of this office is to grow the pool and increase participation within the pool. This clearly is a conflict of interest,” the audit said. Companies “eventually earn enough money to be eliminated from the DBE pool.”
“However, it is those companies that aid MnDOT in reaching its participation goal. Audit has found several companies that no longer meet the DBE requirements.”
Further, the minority office’s specialists had neither the “technical knowledge” nor “level of effort” to properly set goals, and they could provide no documentation for the percentage of contracting dollars it said were given to minority firms, or duplicate its calculations. And “our review found little to no monitoring or enforcement mechanisms to ensure compliance.”
When the owner of a trucking company sent in documentation showing he had a personal net worth in excess of the $1.34 million limit, the director of civil rights intervened to ensure that, despite the rules, the company remained eligible for contracts, the audit found.
In New York, one minority contractor’s personal net worth ballooned to nearly $2 million, yet he refused to pay taxes and listed his tax debt as a liability on his disclosures, bringing his net worth below the $1.34 million required to continue to get government contracts. Overseers approved that reasoning, federal investigators found.