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Griffin & Strong Find Significant Disparities in N.C. Procurement: Non-Partisan Small Business Reserve Program is one of the Best Remedies for N.C.

The NC Department of Administration’s Historically Underutilized Business Office recently released a disparity study, researched by Griffin & Strong P.C., on the availability and utilization of minority and women business enterprises (MWBE) in government contracting. Researchers used procurement data from FY2014-2015 to look for and examine evidence of discrimination in North Carolina’s procurement practices. 

Griffin & Strong released their data in two reports: one focused on the procurement practices of North Carolina State Agencies, and the other reports on the contracts doled out by North Carolina’s Universities and Community Colleges, in the Industry Categories of Construction, Architecture and Engineering (“A&E”), Professional Services, Other Services, and Goods. The reports show that in nearly all categories1, North Carolina State Agencies, Universities and Community Colleges significantly underutilized minority and women owned businesses in contracts given to firms in all five industry – categories.

In order to reveal disparities researchers at Griffin & Strong P.C., determined the percentage of W/MBE firms in each industry category that are willing and able to do business with North Carolina and compares that with the amount of contract money awarded to firms by North Carolina State Agencies, Universities, and Community Colleges. The reports revealed that disparities were greater in contracts provided by state agencies than the disparities from University and Community College contracts. According to the study, 21.02% of construction firms able to do business with North Carolina are MBEs and 12.55% are WBE, yet MBE Construction firms received only 1.84% of total dollars spent on State Agency Construction projects and WBE received 5.39% of the funds from State Agency Construction contracts. The report on Universities and Community colleges showed that MBEs received 2.86% of construction contracts and WBEs received 9.65% of the construction contract funding.

The disparities for contracts given to MBEs is far greater than the disparities for WBEs in both reports for nearly all categories. Griffin & Strong created a disparity index to show the level of under and overutilization of certain firms in various categories. Scores below 100 represent underutilization, scores over 100 represent overutilization and a score of 100 represents perfect utilization.

Table 1 - Business Ownership Classification by Fiscal Year North Carolina Disparity Study
Table 2 - Business Ownership Classification by Fiscal Year NC-CC/Univ Colleges and Universities Disparity Study

As the graphs above show, MBEs are underutilized at rates far greater than WBEs in all the Industry categories except for goods in the Universities and Community Colleges study. In order to address this, the State should decouple the procurement goals of MBEs and WBEs. North Carolina could look to Ohio which has separated their MBE program from their WBE program and is in the process of creating a hybrid program called the Encouraging Diversity, Growth and Equity (EDGE) Program. Ohio’s MBE program establishes 15% procurement goals for state contracts to be awarded to certified MBEs, along with Financial and Bonding Assistance and Management and Technical Assistance, while it’s WBE program does not allow set aside procurement goals.

In order to address the disparities in North Carolina procurement rates, Griffin & Strong made 12 Policy recommendations North Carolina can make to increase WMBE utilization. In accordance with the legal requirements for MWBE programs set forth in City of Richmond v. J.A. Croson Co., 488 U.S. 469 (1989), many of the policy recommendations are race neutral. Two of the recommendations are particularly timely in that they will help address North Carolina’s procurement disparities and help bolster small businesses ravaged by the pandemic. The recommendations are:

  • Create a Small Business Reserve Program that allows only small businesses to bid on certain sized contracts.
  • Implement Mandatory Subcontracting goals on large contracts to create more opportunities

These policy recommendations could help revitalize North Carolina’s small businesses that have been hit hard by the pandemic. As the below graphics show, both the number of small businesses open in North Carolina and the revenue that small business has generated is significantly lower than it was in January 2020 before the start of the pandemic. Creating a statewide a small business reserve program, modeled after Maryland’s small business reserve program could keep struggling small businesses from having to shutter their doors. The program would allow firms in the state to register as small businesses, and then compete for set aside projects that can only be awarded certified small businesses.

Figure 1 - Percent Change in Number of Small Businesses Open: In North Carolina, as of May 05 2021, the number of small businesses open decreased by 27.3% compared to January 2020
Figure 2 - Percent Change in Small Business Revenue: In North Carolina, as of May 05 2021, total small business revenue decreased by 18.3% compared to January 2020.
https://tracktherecovery.org/

All small businesses, regardless of their ownership status have been hit hard by the pandemic. Creating a small business reserve program would help create more job opportunities for small businesses hurt by the pandemic. Moreover, since WMBEs tend to be disproportionally smaller with less access to the capital necessary to bid for large contracts, creating a small business reserve program with set-aside procurement goals and creating contracting jobs that require less access to capital would disproportionally help MWBEs, without enacting specific race-based resolutions that are often subject to political controversies and court challenges.  

To help bolster MWBEs and all small businesses across North Carolina. Governor Cooper should establish a Small Business Reserve Program under the Office of Historically Underutilized Businesses, that offers 15% of State Agency procurement projects as set asides for certified small businesses.

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Win for Historically Black Colleges and Universities

North Carolina House Representative Alma Adams has won an important victory for Historically Black Colleges and Universities (HBCUs) by incorporating her bill, the HBCU Capital Finance Debt Relief Act, in the 2021 Omnibus Spending Act which was signed into law on December 27th 2021. Representative Adams chairs the bipartisan Congressional HBCU Caucus, which she co-founded in 2015. Her legislation will discharge $1.34 billion in loans to HBCU’s across the country accrued under the HBCU Capital Loan Financing Program. The relief will be a boon for HBCUs which have historically been underfunded.

To give an idea of how much this bill will help, the total endowments for all of the United States HBCUs is $2.1 billion, by comparison UNC Chapel Hill has the 29th largest endowment for colleges and Universities in the United States of 3.7 billion. The relief represents over half of HBCUs’ total endowments and will help alleviate some of the disparities between HBCUs and comparable Predominantly White Institutions (PWIs). According to a 2018 study by the Government Accountability Office HBCUs have a median endowment of $15,000 per student compared with matched non-HBCU schools that had a median endowment of $410,000 per student.

HBCUs help drive the economic development of the United States. According to a study by UNCF HBCUs generate $14.8 billion in economic impact annually.  Investment in HBCUs provides an excellent return on investment in which for each dollar of initial spending generates $1.44 dollars in subsequent spending for the regional economies in which they reside. Since HBCUs are often located in economically struggling regions, the health and wealth these institutions provide are often essential to the economic wellbeing of the locations they reside in.   Representative Adam’s bill also expands Pell grant eligibility, which will help all college students but particularly those that attend HBCUs. Over 75% of HBCU undergraduate students rely on Pell grants to pay for college expenses, compared to 39.1 of all US undergraduate students who use Pell grants to fund their education. Representative Adam’s bill expands the number of people eligible to receive aid and increases the maximum grant amount. The bill will help HBCUs and their students to continue to help grow and expand the economies in their surrounding communities.

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Disparities in PPP Lending by Gender

The Paycheck Protection Program (PPP) was Congress’s main effort to ameliorate the pandemic’s effects on small businesses. As of January 31, 2021, the Treasury Department doled out over 6 million loans totaling nearly 600 billion dollars with an average loan amount of $98,560. The initial rollout of the program has been criticized for favoring larger businesses seeking higher loan amounts and effectively shutting out smaller minority and women owned businesses most likely to shutter their doors without immediate financial relief. (https://www.bloomberg.com/graphics/2020-ppp-racial-disparity/; https://www.prnewswire.com/news-releases/new-study-finds-women-owned-businesses-were-passed-over-in-the-ppp-loan-process-301046329.html)

The data from the Treasury department shows that loan averages for the first window of PPP loans, between April 3rd and April 16th, before the money ran out were much higher than the loans paid out the months following. All of the PPP loan data shows that male owned businesses received a larger loan amounts than female owned businesses and at a higher rate compared to the number of male owned businesses in the nation. According to 2017 Census data, women owned businesses made up 39% of employer and non-employer firms in the United States (https://data.census.gov/cedsci/all?q=AB1700CSA01; https://www.census.gov/programs-surveys/abs/data/nesd.html). In the first window of the PPP program women owned businesses made up only 22% of the firms that responded to the gender demographic question for PPP loans. From April 27th 2020 to January 31st, 2021 women owned businesses made up 27% of the firms that responded to the gender demographic question for PPP loans.  Therefore, women owned businesses received loans at a rate between 12-18% less than there overall make up as business owners in the nation.

There is also evidence for both periods PPP loans were made available the percentage of women owned businesses receiving loans and the average amount they received is even lower than the data indicates. For both time periods female owned businesses received lower average loan amounts than male owned businesses and loan applicants that did not respond to the gender question on the application.  

Simple regressions which omitted unanswered responses, and controlled for the number of employees a business, whether the loan was made to a rural or urban business, whether the firm was a nonprofit and whether the business was located in an area defined by the SBA as a Historically Underutilized Business Zone (HUBZone) showed that women owned businesses received significantly lower loan amounts than male owned businesses (P-Values less than .1%) for the time periods represented in the charts below. From April 3rd to April 27th 2020, women owned businesses received an average of $21,848 dollars less than male owned businesses. From April 27th 2020 to January 31st 2021, women owned businesses received an average of $11,215 dollars less than male owned businesses.

In the first period that PPP loans were available, businesses that did not respond to the gender demographic question in their loan application received higher average loan amounts than the respondents that did respond to the gender demographic question. Given that women owned businesses received significantly lower loan amounts than male owned businesses in both time periods the unanswered loan amount category should fall in the upper-middle range of the average loan amounts for male and female owned businesses if it comprises the same ratio of male to female owned businesses as the firms that responded to the demographic question on their loan applications. The higher loan averages for the unanswered category between April 3rd to the 16th suggests two things.

  1. Female business owners were likely even more underrepresented than the data suggests.
  2. The discrepancy of average loan amounts between male and female owners is even higher than the data suggests for the first time period PPP loans were given.
Chart: PPP Loans by Gender from April 3rd to 16th 2020
Table 1: Average Loan Amounts by Gender from April 3rd to 16th, 2020
Table 2: Average PPP Loan Amounts by Gender from April 3rd to 16th, 2020
Chart 2: PPP Loans by Gender from April 27, 2020 through January 31, 2021
Table 3: Average Loan Amounts by Gender from April 27th, 2020 to January 31st, 2021
Table 4: Average Loan Amounts by Gender from April 3rd to 16th, 2020
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Disparities in PPP Lending by Race

PPP loan data on race reveals disparities in the number of loans for the first time period PPP loans were given and amount of loans given to minority and non-minority owned businesses for both time periods. According to 2017 Census data minority owned businesses made up 31% of employer and non-employer firms, non-minority owned businesses made up 68% of total businesses in the U.S., and businesses equally minority and non-minority owned made up less than 1%. According to loan data in which respondents answered the demographic question on race, non-minority applicants received 83% of loans and minority businesses only received 17% of loans for the first period PPP loans were available. Black owned businesses fared the worst compared to their overall make-up of businesses owners in the first window of opportunity. Black owned businesses only received 1.6% of loans when they made up 10% of U.S. businesses owners according to U.S. Census data.

Chart 1: PPP Loans by Race from April 3rd through 16th, 2020
Table 1: Average Loan Amounts by Race Compared to White Owned Businesses from April 3rd, 2020 to January 31, 2021
Chart 2: PPP Loans by Race from April 27, 2020 through January 31, 2021
Table 2: Average Loan Amounts by Race Compared to White Owned Businesses from April 27th, 2020 to January 31st, 2021
Table 3: Average Loan Amounts by Race Compared to White Owned Businesses from April 27th, 2020 to January 31st, 2021
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Redlining Reparations: Evanston Illinois takes a Lead in Addressing the Race Wealth Gap

“This neighborhood houses the large negro population living in Evanston. It is somewhat better than the average negro district in that the bulk of the houses are one family detached units in anything but a congested district for this class of population. Here live the servants for many of the families all along the north shore. There is not a vacant house in the territory, and occupancy, moreover, is about 150 percent for most houses have more than one family living in them. Sales have been very good where liberal financing terms are available, but on other sales mortgage financing is virtually impossible to obtain.  This concentration of negroes in Evanston is quite a serious problem for the town as they seem to be growing steadily and encroaching into adjoining neighborhoods. The two family structures are in most cases converted singles and they likewise are overflowing with occupants; these buildings are rented as unheated units. The number of persons on relief in this district is probably heavier than in any other area along the north shore. Although this area is unattractive to other than the class of occupants already here, it is difficult to say that the section is declining, for it is in constant demand because of the limited number of areas available for negro occupancy in the north shore towns.

Location: Evanston, Ill.                  Security Grade: D             Area No: 2          Date: Jan. 1940

(https://dsl.richmond.edu/panorama/redlining/)

Evanston, IL will be the first city in the United States to make good on their promise to offer a reparations program to its black residents that have suffered economic devastation from discriminatory lending practice (https://www.cityofevanston.org/government/city-council/reparations). In 2019, the city council voted to provide $10 million towards a housing program for black residents, and on March 1st the Council approved a $400,000 initiative to be doled out in $25,000 grants for home improvement or down payments. The grants will be made to qualifying residents who can show they lived in Evanston from 1919-1969 or were a direct descendant of an individual that lived in the area and suffered from discriminatory lending practices.

Evanston’s focus on housing is an excellent way to bring reparations to communities of color, who have suffered decades of discrimination and should be used as a blueprint for cities across the country. Too often the call for reparations begins and ends with reparations for slavery. While reparations for slavery are necessary to address the inequities in American society, they are only a beginning. Focusing on slavery ignores the century of institutionalized discriminatory practices that kept black and other minority Americans from achieving the most important source of wealth accumulation: home ownership (https://www.huduser.gov/publications/pdf/wealthaccumulationandhomeownership.pdf ) The Post-WW2 economic boom was helped in large part by the G.I. Bill which promised low-rate mortgages, low interest loans and education to those who fought in WW2. But black veterans who fought to end a holocaust in Europe faced their own holocaust when they returned home in the form of lynching and red lining when they tried to cash in on the benefits of the GI Bill (https://www.history.com/news/gi-bill-black-wwii-veterans-benefits). The newly minted Home Owners Loan Corporation (HOLC), began rating neighborhood with four grades  A: “Best”, B: “Still Desirable”, C: “Definitely Declining”, and D: “Hazardous”

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Medicaid Expansion Could Have Prevented 745 COVID-19 Deaths in North Carolina

The COVID-19 pandemic has given North Carolina one more reason to join the 38 other states that have received federal dollars for Medicaid expansion. Given that the United States is the only industrialized country without nationalized health care (https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1447684/ ) has the highest total death count of any country (https://www.statista.com/statistics/1093256/novel-coronavirus-2019ncov-deaths-worldwide-by-country/) and the fifth highest per capita death rate in the world (https://coronavirus.jhu.edu/data/mortality), we sought out to see if there was any evidence to suggest a correlation between uninsured rates and COVID-19 deaths.

Studies show that people without insurance report delaying or simply foregoing necessary medical treatment due to cost (https://www.kff.org/report-section/the-uninsured-and-the-aca-a-primer-key-facts-about-health-insurance-and-the-uninsured-amidst-changes-to-the-affordable-care-act-how-does-lack-of-insurance-affect-access-to-care/). We hypothesized that counties with a population that have higher percentages of uninsured would have higher rates of COVID-19 deaths when controlling for per capita COVID case rates.  County wide data for all 50 states and Washington DC was downloaded from Policymap.com, which aggregates data from a number of sources including the Census and data from the New York Times COVID Tracking Project,  To create a more robust dataset we also controlled for percentage of those aged 65 plus as well as the percentage of black and Hispanic populations, due to data which suggests that the death rates among blacks and Hispanics is higher than the percentage of blacks and Hispanics among the total U.S. population.  (https://www.cdc.gov/coronavirus/2019-ncov/covid-data/investigations-discovery/hospitalization-death-by-race-ethnicity.html) We also added underlying health conditions correlated to higher COVID-19 morbidity to the model based on Census data which estimated the percentage of the population with the conditions.

Photo by Nguyễn Hiệp on Unsplash

The model showed that with all the variables being held equal for every one percent increase in uninsured rates an average 1.4 more people will die of COVID per 100,000, which is statistically significant at the 1% level. In 2019,  North Carolina had the 9th highest uninsured rate in the U.S. of 11.4% compared to the national average of 9.2% (https://www.kff.org/other/state-indicator/total-population/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Uninsured%22,%22sort%22:%22desc%22%7D). According to the dataset Medicaid expansion states have uninsured rates an average 4.95% lower than non-Medicaid expansion states, which is statistically significant at the .001 level. This falls right in line with the estimated 400,000-620,000 people currently in North Carolina’s coverage gap who could benefit from Medicaid expansion and represents 3.8-5.9% of North Carolina’s population (https://www.ncchca.org/community-resources/policy-advocacy/nc-insurance-gap/ ) If North Carolina was a Medicaid expansion state our uninsured rate would be about 5% lower than it is now. According to our model 5 percent lower uninsured rate would have resulted in an average of 7.1 fewer COVID-19 deaths per 100,000, which extrapolated to North Carolina’s population of 10.49 million means that expanding Medicaid could have saved the lives of close to 745 North Carolinians.  

Table 1: Per Capita COVID-19 Deaths by County to March 14, 2020
Table 2: Per Capita COVID-19 Deaths by County to March 14, 2020
Table 3: Percent Uninsured for Medicaid Expansion States Compared to Non-Medicaid Expansion States
Map: Percent People Without Health Insurance