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VOL. 9 | NO. 5 | Saturday, January 30, 2016

Fenced Out

How to tackle a big problem: black-owned businesses garner less than 1 pct. of total business receipts in Memphis

By Madeline Faber

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There’s a major problem in Memphis when it comes to minorities: African-Americans make up 63 percent of the population but garner less than 1 percent of total business receipts within Memphis, according to the most recent U.S. Census data.

The longstanding issue is revived again as the Greater Memphis Chamber, in partnership with Memphis’ minority business support groups, pulls together a comprehensive plan to increase participation of minority- and women-owned businesses in the private and public sector.

Similar plans have sprouted and died on the vine before, but the clock is ticking for the chamber this time around.

Warren Price, who has owned South Memphis Fence Co. for nearly 40 years, wants to see increased policing of companies that gain tax breaks by promising to contract with minority- and women-owned businesses.

(Memphis News/Andrew J. Breig)

The plan is being compiled in response to updates made to the Memphis-Shelby County Economic Development Growth Engine’s payment-in-lieu-of-taxes program, which makes contracting with local minority businesses a hard requirement if a company wants to gain tax breaks.

The chamber says it’s a deal killer.

At the EDGE board meeting last December, chamber president and CEO Phil Trenary and incoming chairwoman Carolyn Hardy called for a three-month delay on implementing the new local business participation program while the organization worked on an alternative.

In the meantime, EDGE has reverted back to the original diversity participation plan that calls for a “best faith effort” to contract with local businesses and minority- and women-owned firms, also known as MWBEs.

Less than 1 percent

Stakeholders from both sides of the aisle agree that something different needs to happen, especially in light of minority participation slipping below 1 percent of all contracts.

The U.S. Census Bureau last week released its most recent Survey of Business Owners, which is based on 2012 data. The bureau publishes the report once every five years.

According to the numbers, Memphis has the second-highest percentage of black-owned businesses out of the nation’s 50 most populous cities. Memphis, with 56 percent of all firms owned by African-Americans, ranked only behind Detroit.

Between 2007 and 2012, the number of black-owned establishments in Memphis increased by 99.5 percent.

Further, 56 percent – some 40,000 firms in Memphis – garnered 0.83 percent of total receipts, defined as operating revenue for goods produced or distributed, or for services provided. In 2007, that figure was 1.08 percent.

Concerned parties say Memphis can’t afford minority participation to fall any further if it means opportunities are decreasing for the largest segment of its population.

“I've got eight trucks out there not moving that should be making money,” said Warren Price of his business South Memphis Fence Co., one of many minority-owned businesses in Memphis that earn less than $1 million per year.

Because of its small size, South Memphis Fence is often looked over when big corporations fill multimillion-dollar contracts.

Most of Price’s work comes from personal relationships with general contractors. Standalone work in the private and public sector doesn’t exist, though he has worked on large deals like Electrolux and the Tennessee Air National Guard relocation. And if it wasn’t for his strong reputation and nearly 40 years in the business, Price believes he’d have a hard time getting any business at all.

When companies working under diversity requirements come to Memphis, they generally contract with the few largest firms and call it a job well done, according to Price.

“We never get a chance to perform,” he said. “These big guys, they just care about making that goal. They don’t care about us.”

Darrell Cobbins, president and CEO of real estate firm Universal Commercial, calls the growth environment for MWBEs a “longstanding embarrassment.”

“For Memphis to grow, we have to place some level of priority on the inclusion and growth of minority- and women-owned businesses,” he added.

Darrell Cobbins, president and CEO of real estate firm Universal Commercial, is critical of the private sector’s priority in contracting with minority- and women-owned businesses.

(Memphis News/Andrew J. Breig)

In June 2014, Cobbins and others issued a public call to action regarding the disparity of MWBEs in the public and private sectors.

“A year and a half later, there's movement but there's not momentum. The fact that all these various entities are at least taking some steps is a positive sign,” he said.

As a member of the chamber’s Chairman’s Circle and an African-American business owner, Cobbins believes something drastic needs to happen.

He’s been communicating with the Chairman’s Circle and Memphis Tomorrow, both clout powerhouses of Memphis executives, about bringing greater collaboration around the issue of minority participation.

“There's no mandate (in the private sector), and we sit at less than 1 percent. So logic would lead you to believe that if it's not required then it's a challenge for it to happen otherwise,” Cobbins said.

Trenary said the number is stagnant because of the existing business environment.

According to the recent census data, only 798 African-American-owned firms reported employees other than the owner. And in a separate study commissioned by Community LIFT based on the 2007 census data, most of the black-owned firms with employees are in lower-skilled economic sectors like retail, health care and food service.

Trenary said the private sector is willing to work with MWBEs, but too often they aren’t the right size, are too hard to find or are in the wrong sector to fulfill a need.

The economic development crowd has to build up the business-to-business sectors like construction, supply and professional services.

The network of support organizations needs to be tighter so that small firms can find even footing to connect with contracts and grow.

And EDGE needs to put the brakes on any MWBE participation requirements.

“If we’re going to depend on government to make a difference in disparity and the amount of minority companies getting contracts, we’ll never get there,” Trenary said.

‘This is cleaner, more straightforward and more honest’

DULBERGER

EDGE president and CEO Reid Dulberger said the updated PILOT program means to simplify the application and understanding of the requirements. Building up local and minority participation wasn’t the driving motivation.

In January 2015, EDGE presented to the board an updated PILOT program that dramatically changed the four available tax incentive programs: the Jobs or Basic PILOT, Community Builder PILOT, Expansion PILOT and Destination Retail PILOT. Included in those changes is an interwoven Local Business Participation program.

To receive a PILOT, recipients must spend with county-certified local businesses and city-certified women- and minority-owned firms an amount totaling 15 percent of the project’s construction costs plus 15 percent of the projected PILOT savings for the duration of the property tax freeze.

“If they didn't reach the number, it would be like not reaching any of their other numbers in terms of jobs, payroll and capital investment,” Dulberger said. “There would be clawbacks.”

The clawbacks include a cash payment to EDGE to make up for the difference or a reduction in the PILOT term.

The program was vetted throughout the year, approved in August and implemented in December, but EDGE held off on the local business participation, or LBP, requirements at the chamber’s request.

The LBP moved forward into 2016 with the Community Builder PILOT, which is meant to spur development in disinvested neighborhoods, because the PILOTs were already awarded under those terms. Dulberger said the applicants haven’t had any trouble meeting the diversity participation requirements.

“This is cleaner, more straightforward and more honest,” he said of the LBP.

The new program is worked into the PILOT matrix and the requirements are known to everyone, as construction costs and PILOT savings are determined up front. Instead of the controlled local spend stated in the previous diversity program, the required amount spent on local- and minority-owned firms is unique to each project.

If the applicant exceeds the inclusion requirement, the company can gain another year or two on the PILOT term.

“The applicant can go to the website and know exactly what the community expects,” Dulberger said.

The previous diversity program dates back to 2009 and was a holdover from the Industrial Development Board, EDGE’s predecessor.

Under the earlier diversity plan, applicants had to commit to a “best-faith effort” to target 25 percent of their local spend for construction, professional and nonprofessional services and goods to local MWBEs. Additionally, applicants had to fill at least 15 percent of the new jobs using the local Workforce Investment Network or other local career centers.

The process was fuzzy, Dulberger said.

“It's one thing to achieve it and it's another to go through some motions and call it best faith effort,” he said. “We don't want to deal with that anymore.”

The new program brings about “consistency and equity in terms of treating people equally and streamlining the purpose,” he added.

In the earlier program, the diversity program was an afterthought. After negotiations with corporate real estate folks and consultants, purchasing people were brought into the fold and the process on actually receiving a PILOT was dragged out.

“A lot of people looked at it (the new PILOT procedures) and no one came forward and said, ‘We think this is a bad thing,’” Dulberger said. “It did seem to be streamlining the position to make us more competitive.”

Trenary said that if Memphis adopts a minority participation requirement, the city will see fewer deals.

Site-selection professionals and consultants will recommend the community with the least amount of risk. If Memphis is seen as more difficult to maneuver, companies will just locate across the border.

TRENARY

“The thought that somehow punishment in this thing makes it better has the exact opposite effect,” Trenary said. “It keeps us from being able to put people to work, and it will be very damaging moving forward to have a policy that none of our peer cities have.”

Memphis has stated that good public policy makes it a requirement for people to give back to the community in some way to gain tax breaks, Dulberger said.

“We understand that the things that make us competitive are not always the things we might agree or might all agree is good public policy,” he added. “We understand there's a balance.”

Dulberger said he’s open to adjusting the PILOT program if the chamber comes forward with a system that makes Memphis more competitive and serves the local business community more efficiently.

‘We’re the ones who are responsible for this’

To face the problem head on, the chamber is spearheading a plan with formal partners Mid-South Minority Business Council Continuum, the Black Business Association of Memphis, the Memphis Area Minority Contractors Association, Memphis Office of Resources and Enterprise, the Memphis chapter of the National Association of Women Business Owners and an alliance of large churches in the area and other supporters.

“Our community has to be held accountable as opposed to punishing those that want to come here,” Trenary says. “We’re the ones who are responsible for this.”

The approach is threefold. The chamber will continue to support the clearly outlined minority business-to-government relationship, will mobilize the private sector around minority business-to-business relationships and will introduce a minority business-to-church relationship.

Jimmie Tucker, principal of minority-owned firm Self-Tucker Architects, said that churches could be a viable economic development strategy for the community.

Jimmie Tucker, principal of Self-Tucker Architects, unlocks the historic Universal Life building. When his firm is finished revitalizing the building, it will be a one-stop shop for Memphis’ minority business support organizations.

(Memphis News/Andrew J. Breig)

His firm has worked on several projects, including housing developments, childcare centers and even sanctuaries, for large churches.

“It would be great if more churches could get on board as well,” he said. “That church may have resources in a neighborhood that otherwise might be not as economically prosperous as the church.”

The various support organizations will hold each other accountable to self-applied growth metrics. Even if EDGE sticks with its original LBP plan, the chamber is moving forward with its initiative to increase the participation of MWBEs.

“I think the programs that we have and the initiatives we have, have not been effective. That’s what’s behind this whole effort,” Trenary said.

A major issue is lack of transparency. His team proposes a universal portal that lists MWBE firms of all sizes and current contracts out for bid. The certification process for being authorized as an MWBE would be streamlined to make way for one certification instead of multiple overlapping ones.

The chamber would also find its own up-to-date baseline of diversity participation.

“Even if we’re off by 100 percent, that’s only 2 percent of all receipts and that’s nothing to be proud of,” he added.

The group also plans to launch a mentor and protege program that pairs fledgling MWBEs with other minority-owned businesses with greater resources, experience or purchasing power.

If the team identifies a sector that doesn’t yet have presence in the MWBE community, it would try to launch that company in an accelerator at the Entrepreneurship-Powered Innovation Center, a startup initiative the Chairman’s Circle launched in 2015.

Tucker said the community tends to look at minority-owned businesses as existing in a silo. In his vision, firms are all brought together around common sectors to learn from each other and network with larger companies.

His firm has been around for nearly 20 years and its portfolio has consistently been half private contracts and half government contracts.

To really play in the private sector, Tucker said, minority- and women-owned firms need to specialize and diversify.

One of his current projects, the renovation of the historic Universal Life building, will set the scene for the growth of Memphis’ minority businesses. The building was designed by Tennessee’s first African-American architecture firm, housed one of the largest African-American life insurance companies in the country and served as an important civic and social pillar during segregation.

When it is fully revived this year, the building will be a one-stop shop for Memphis’ minority business support groups, including many of the groups working on the chamber’s diversity initiative.

Dubbed the Memphis Minority Business Center, the building also will have co-working space and regular programming to catalyze small business development and bring minority businesses into the greater community.

‘Voluntary doesn’t mean you’re not accountable’

Cobbins said he’s “50-50” about EDGE’s diversity requirement.

“It’s part of the challenge for somebody like me who is out here running a business but at the same time is trying to address the macro systemic issues that impact the business,” he said.

Cobbins’ plan includes building a team in the private sector completely dedicated to connecting MWBEs with contracts. The reason Memphis had slid so far in terms of inclusion is because no one has stepped up to make it a priority.

“Voluntary doesn’t mean you’re not accountable.”

What he’d like to see is mobilization similar to Memphis’ workforce development initiative. The community raised $6 million in a two-month period to create the Greater Memphis Alliance for a Competitive Workforce, he said.

“When they decided it was important and it was a priority and they wanted to get something done on it, it happened just like that,” he added. “If we can say it's important to get folks to work, we should say it's important for folks to start businesses and be able to succeed in Memphis, where historically they've had problems doing that.”

Price of South Memphis Fence said diversity requirements aren’t helping anybody unless they’re helping everybody.

Ideally, he’d like to see large companies set aside a small percentage and, instead of taking it out for general bid, go to a MWBE roster and partner with a qualified firm.

The smaller firms could put in locks, light bulbs or drywall to earn a bit of money to grow their businesses and take on larger contracts.

“Little things like that would make a big difference in these contractors’ lives. Whether you believe it or not, that’s a lot of money to us,” he said. “Those people I had to lay off, I could call them back.”

Price believes it’s the government’s role to build up MWBE participation, and he’s confident in the new administration.

He’d like to see a civic position created to monitor companies’ economic impact and redirect some wealth to smaller contractors. With greater local spending and opportunities for Memphians, crime and poverty would decrease.

“If they could give us work, then we could grow. And when we grow, we could help ourselves and others.”

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RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 73 155 19,728
MORTGAGES 95 170 23,084
FORECLOSURE NOTICES 4 11 8,315
BUILDING PERMITS 200 338 40,366
BANKRUPTCIES 50 122 13,226
BUSINESS LICENSES 14 23 6,160
UTILITY CONNECTIONS 33 85 13,080
MARRIAGE LICENSES 28 58 4,900

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