Member Groups

The Challenge
The newsletter of the ISBA’s Standing Committee on Racial and Ethnic Minorities and the Law

November 2009, vol. 20, no. 1

The City of Chicago renews its commitment to minority and women-owned businesses

The City of Chicago has recently renewed its Minority and Women Business Enterprise Program (“MWBE Program”), an affirmative action program in construction with goals for awarding 24% of City construction contracts to Minority-owned Business Enterprises (“MBE”) and 4% to Women-owned Business Enterprises (“WBE”). The recent renewal of the MWBE Program came after studies initiated by the City and conducted by experts revealed widespread minority discrimination in the field of construction and business lending.

Construction is a key sector in the nation’s economy, employing over 8 million workers, or 6% of the country’s work force. The vast majority of construction firms are small, with approximately two-thirds of the City’s construction firms comprised of less than five employees. The industry is therefore highly volatile and susceptible to the prevalence (or lack thereof) of continuing contracts. This is especially true given the current economic crisis that is affecting the nation, and more locally, the Chicagoland area.

Minorities have been traditionally underrepresented in the construction industry. The Statistical Abstract of the United States reveals that in 2005, 12.3% of the population was African American, 14.45 Hispanic, 4.3% Asian/Pacific Islander and 0.75% Native American. And yet, according to the 2002 Economic Census Survey of Business Owners, of the 2,770,888 construction firms in the United States, only 2.4% were owned by African Americans, 7.0% by Hispanics, 1.1% by Asian Americans, and 10.5% by women. Also, generally speaking, minority-owned firms have had lower average sales, less employees, lower payrolls, and higher closure rates than white-male-owned firms.

The City’s MWBE Program first began in 1985, through an executive order by then-Mayor Harold Washington. In 1989, the United States Supreme Court’s landmark decision in City of Richmond v. J.A. Croson Co., 488 U.S. 469 (1989), established the constitutional framework for race-based municipal contract programs. In Croson, the Court held that such notice-based municipal procurement programs are constitutionally suspect and must survive strict scrutiny by showing a compelling governmental interest and narrow tailoring. Because of the Croson decision, the City established a blue ribbon commission to report on the need for an MWBE program in order to satisfy strict scrutiny. After days of public hearings, the City’s original affirmative action ordinance was adopted in 1990, which legislatively established a set-aside program for City procurement, encompassing construction, goods and services.

In 1996, the Builders Association of Greater Chicago filed a lawsuit challenging the City’s ordinance. In 2003, after a six week trial, Judge James Moran, of the United States District Court for the Northern District of Illinois, found that the City had established a compelling interest for a race-based procurement program in construction, based on statistical and anecdotal evidence of discrimination against minorities and women in the Chicago construction market. However, he struck down the City’s ordinance as unconstitutional in light of Croson, since the ordinance was not narrowly tailored, and more expansive than plans sustained by the courts. Builders Ass’n of Greater Chicago v. City of Chicago, 298 F. Supp. 2d 725, 739 (N.D. Ill. 2003). Judge Moran noted that the ordinance did not have a termination date, and also was too similar to a rigid numerical quota system, which did not survive strict scrutiny. However, Judge Moran stayed his order enjoining the City’s program for six months, giving the City time to “mend it not end it.”

In May 2004, the City with the assistance of Shefsky & Froelich, Ltd., trial counsel in the Builders Association lawsuit, presented a revised ordinance to the City Council. The amended ordinance was adopted, and included a sunset date of December 31, 2009. When creating the current MBWE Program in 2004, and renewing it again in 2009, the City wanted to ensure that it provided sufficient econometric studies to firmly establish a compelling governmental interest. For this purpose, the City sought the services of Dr. David Blanchflower, of Dartmouth University, a renowned expert in labor market analysis and economics, who prepared a detailed report for the City Council. Dr. Blanchflower’s report included written interview summaries prepared by social science experts who each examined a specific subset of the MWBE Program and discrimination therein: Dr. Ana Aparacio, of Northwestern University (Hispanic and women owned firms), Dr. Cedric Herring, of University of Illinois-Chicago (African American-owned firms), and Dr. Yvonne Lau, of DePaul University (Asian American-owned firms). Together, these reports demonstrated significant and ongoing discrimination in the Chicago construction industry.

Specifically, Dr. Blanchflower found the following: First, considerable disparaties remained in the self-employment rates and earnings of white males versus minorities and women in construction. Second, statistically significant differences in industry loans existed for the African American and Hispanic-owned firms, with such firms having increased loan denial probabilities and higher interest rates. Third, these factors were exacerbated by the current economic situation, with lending standards tightening, self employment and small business hiring taking a downward trend, and small business bankruptcy filings rising.

Dr. Blanchflower then made the following recommendations in his report, which the City adopted: (1) The City’s construction goals in the original MWBE plan should remain as they currently exist (total Minority Business Enterprise goal of 24%; total Women Business Enterprise goal of 4%; total MWBE availability 28%); (2) due to the current economic conditions, all groups now included in the ordinance will remain, with the addition of Native Americans, and any revisions to the MWBE Program should be revisited in a more favorable economic climate; and (3) the new ordinance should remain in effect until the end of 2015, with an interim review by the end of 2012 to allow for an examination of the impact of recession. ■