What Is It?

Healthy local businesses are a basic component of strong, sustainable communities. They generate job opportunities for residents, and that keeps money circulating within the neighborhood rather than draining outward.  In urban communities of color, businesses owned by people of color (known to most government programs as "minority-owned" businesses) are particularly important. Research shows that minority businesses hire much greater percentages of minority employees than majority-owned firms do.

Small businesses and minority-owned businesses face many challenges, however.  Compared to their numbers, they receive a proportionately small percentage of public contracts.  In Virginia, approximately 15 percent of businesses are minority-owned, but in 2001 only 1.4 percent of state contracts were awarded to them.  Legal actions and voter initiatives to dismantle or weaken affirmative action programs are exacerbating such trends.  Seattle, Washington, eliminated any race-targeted programs in 1998; by 2001, the number of black-owned construction firms with city contracts had declined from 25 to four.

To support the economic health of urban neighborhoods and level the business playing field, many governments and community organizations have created policies and programs to increase opportunities for minority-owned and other emerging small businesses.  Most of these programs focus on the construction industry, because it receives a large amount of public money and offers well-paying jobs for people without advanced education.  Connections and prior experience are also very important in the construction world, which makes disparities more stubborn.  This tool will focus on minority-owned contracting firms, but many of the lessons could be applied to other areas of small business support as well.

There are three major approaches to achieving parity for minority-owned businesses:

• Legislation that creates institutional mechanisms to ensure ample and consistent opportunities for minority contractors; 
• Community-benefits agreements that require publicly-subsidized developments to take up demonstrated community needs, like hiring local firms and residents; and
• Efforts by government and community-based organizations to both build the capacity of, and enhance access for, targeted firms.

These measures can have a demonstrable effect. Since 1990, Chicago has consistently met or exceeded its goal of awarding 25 percent of contract dollars (on contracts over $10,000) to minority-owned businesses.  The city also directs 5 percent to women-owned businesses.  The Port Authority of New York and New Jersey, which operates aggressive outreach efforts in Queens, Washington Heights, and Newark, increased contracts to small minority- and women-owned firms by 113 percent between 1998 and 1999.  This translated to $189 million in construction, architectural and engineering, and goods and services contracts, which supported 2,770 jobs and $108 million in wages.

With targeted efforts to break through the isolation of minority-owned firms and build capacity and connections, development projects can begin to return more of a benefit to urban neighborhoods.

Last Updated: August 2002