VOL. 132 | NO. 102 | Tuesday, May 23, 2017
Hardy: EDGE’s MWBE Program Not Working
By Bill Dries
The chairwoman of the Greater Memphis Chamber board said first indications are that minority business requirements in tax breaks awarded by the Economic Development Growth Engine – or EDGE – aren’t working.
“What we learned on a couple of our projects is they met the goal … but no blacks participated on the project,” said Carolyn Hardy on the WKNO/Channel 10 program “Behind The Headlines.” “So in order for that PILOT (payment-in-lieu-of-taxes) program to be successful, they have to separate women from blacks. Combining them does not work because that’s another way to game the system – to exclude us totally.”
After much debate about the impact that setting a percentage goal would have on attracting or repelling businesses seeking to grow or relocate in Memphis, the EDGE board approved a requirement that companies getting incentives must spend 25 percent of construction costs with local and minority-owned businesses plus 15 percent of the savings the company gets for the duration of the property tax freeze under a PILOT.
Just under a year into the policy, Hardy said the outcome shows the general designation should give way to more specific business descriptions.
“The statement that companies will not come here if they are required – when you have a situation that is as dire as Memphis, where 50 percent of our children are living in poverty, where the gross receipts of the black community are dismal – we have to do something that is extreme,” she said. “If there are companies that don’t want to come to Memphis because they have to do business with the minority community, then do we really need those companies? I question that.”
The “Behind The Headlines” program also featured city business diversity and compliance director Joann Massey and Rodney Strong of Griffin & Strong, the Atlanta consulting firm that did the city’s disparity study. The TV show is hosted by Eric Barnes, publisher of The Daily News, and can be seen on The Daily News Video page, video.memphisdailynews.com.
Strong said other major cities have a specific minority business percentage requirement in exchange for tax breaks.
“You have to recognize these companies are receiving a substantial tax break. When they come in, they are receiving benefits,” he said. “The reality of it is, they’ve done it in other places. … Often times they are just saying we don’t want the time, the effort and the expense and I think it’s incumbent upon the city to require that.”
Massey said city government’s effort to increase the percentage of city contracts to minority businesses – in a city that is 67 percent African-American by the latest U.S. Census figures – isn’t just aimed at government contracts.
“When we’ve gotten there is when our economy is doing better – is when there is more opportunity in the private sector for minority and women businesses as well,” she said, adding the goal is to have minority business participation “ingrained in the public and private sector.”
City government’s percentage of spending and contracts with MWBEs – minority and women business enterprises – has gone from 14 percent as of the end of March 2016 to the current 24.4 percent.
The disparity study points out areas for contracting with minority and women-owned businesses where there is capacity in a certain sector. The legal process for adopting a disparity study and tailoring a program to address it requires adhering to those findings specifically.
“The goals have to be narrowly tailored,” Massey said. “Even though we look at Memphis being 70 percent African-American, we can’t set our goals arbitrarily based on demographics.”
The renewed local push for minority business growth that began in 2014 is a broader push for more private business-to-business contracting for black-owned businesses.
And Hardy, who is a business owner, says contacts by the chamber with some private business leaders come with complaints by those business leaders that they can’t find black-owned businesses.
“That statement was made as recently as 60 days ago,” she said.
Memphis Light, Gas and Water Division has shared its list of black-owned companies with members of the chamber’s Chairmen’s Circle, which includes the city’s largest and most influential private businesses who are talking with other private white-owned businesses, she added.
“One of the concerns you hear from majority businesses, from white businesses, is that they are afraid of taking business from someone else,” Hardy said. “Well, we only have 0.83 percent (of total business receipts in the city). So the taking is not too drastic yet, OK? I’ll worry about that when we’re up to 20 percent.”
Another concern from white-owned businesses is that black-owned businesses and their leaders don’t have the “skill set” even when those businesses have partnered with white-owned businesses.
“It’s important that you understand that a lot of the black businesses came about after they were employed by a white business,” she said. “Then all of a sudden, they were doing such a great job, they were managing that construction process, they were a general manager or whatever – they decided to go out on their own. The moment they went out on their own, their skill set dropped. All of a sudden, they are no longer skilled, which really bothers me.”
Strong says the result is black-owned businesses hit a ceiling in terms of what they can do locally, so a lot of them remain in Memphis but only do business outside the city.
“Some of them are reaching outside the Memphis market. Some of them are doing much less than they have the capacity to do if they had the resources that are necessary,” he said. “And when I say resources, I mean opportunities to obtain contracts and financing for those contracts. We really identified a gap between the firms that are available and what they are actually doing in the marketplace in terms of their revenue. And that makes a big difference.”
Massey said the city continues to streamline the certification process for minority and women-owned businesses to compete for the designated percentage of city contracts. Shelby County government accepts city certification and vice-versa as well as the Memphis-Shelby County Airport Authority.
And Massey anticipates once the Shelby County Schools system gets its disparity study and builds a program around it, there will be another reciprocal certification program.
Obtaining local certification can cost a business $350 to $500.
While there has been some questioning among minority business leaders about the need for the certification, Hardy said it is needed because some companies that aren’t really minority businesses have succeeded in attempts to game the system.
“There are contracts that from the business community standpoint we know have gone to entities that were fronted by white women, but their husbands actually ran the companies,” she said. “That really hurts minorities when we go in intentionally trying to do the right thing – make sure we have the right capital, that we are scalable. Then we run into a wall where people are gaming the system. We are going to have to deal with that right away.”
Strong said his firm routinely tells cities that their certification process should be “rigorous” and that the city should check workplaces to make sure a company is not “a front.” Massey said even with the reciprocal certification, the city is doing its own confirmation and spot-checking.
“A lot of people question why we need certification,” Strong said. “But the reason we need certification is because these programs provide a benefit. So consequently, you are going to have people who wish to access the benefit who don’t qualify for it.”