The Impact of Proposition 209 on California's MWBEs

The Impact of Proposition 209 on California’s MWBEs One Billion in Contract Dollars Lost Annually

by Businesses Owned by Women and People of Color Due to Proposition 209

By Tim Lohrentz Commissioned by the Equal Justice Society Made possible by a grant from the Surdna Foundation February 2015 | equaljusticesociety.org

This report was made possible by a grant from the Surdna Foundation.

The Impact of Proposition 209 on California’s MWBEs One Billion in Contract Dollars Lost Annually by Businesses Owned

by Women and People of Color Due to Proposition 209 Tim Lohrentz for the Equal Justice Society February 2015

Table of Contents Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Examining the Impact of Proposition 209 on MWBE Procurement in California Jurisdictions . . . . . . . . . . . 6 State of California (all agencies) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Los Angeles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 San Francisco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 San Diego . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Oakland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 San Jose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

California Department of Transportation (CALTRANS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 APPENDIX – Data Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Acknowledgments and Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

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Executive Summary Proposition 209, passed in November 1996, ended the use of race and gender conscious decision-making in California in the areas of public employment, public education, and public contracting or procurement.

A major impact was in the public procurement process of the State of California as well as local governments. Minority and women business enterprises (MWBEs), which had been erasing the disparity between their availability and their utilization, were heavily impacted. Some never recovered.

This study attempts to quantify the impact by measuring the loss in contract dollars to those businesses.

Proposition 209 caused the state and local governments to end their race-conscious contracting programs, resulting in a loss of $1 billion to $1.1 billion annually for MWBEs. This study shows the following impacts in today’s dollars due to Proposition 209: • The loss of about $820 million per year in MWBE contracts with the State of California • The loss of about $200 million per year in MWBE contracts with the City/County of San Francisco, with some of this loss materializing immediately after Proposition 209 and additional losses following the 2004 Coral Construction case, which definitively ended San Francisco’s race-conscious procurement program • The loss of about $30 million per year in MWBE contracts with the City of Oakland • The loss of an estimated $20 million per year in MWBE contracts with the City of San Jose following the 2000 Hi-Voltage Wire Works case, which definitively ended San Jose’s race-conscious contracting program • There are also numerous indirect impacts of Proposition 209 which this study does not attempt to quantify.

The largest loss in contracts for MWBEs was with the State of California, in which up to $823 million has been lost each year since Proposition 209. In fiscal year (FY) 1994-1995, $519 million was contracted to MWBEs, the equivalent of $823 million in October 2014 dollars. When the state ended its MWBE program, it appears that only a few MWBEs regained contracts with the state. There was only a negligible increase in Small Business Enterprise procurement with the state following Proposition 209, the main Figure 1 Annual Loss in MWBE Contracts route to state contracts that would still be in Dollars (October 2014 $) available for these minority- or women-owned small businesses.

The second largest loss of MWBE contracts was with City and County of San Francisco. By refusing to accept an unduly narrow reading of the reach of Proposition 209, San Francisco maintained its race-conscious program until 2004, when the Coral Construction legal decision forced the City to end it. From 1992 to 19951, before Proposition 209, San Francisco averaged $202 million per year (in October 2014 dollars) in contracts or subcontracts to MWBEs. Contracts to MWBEs dropped to an estimated $71 million in FY 1997-98 while the city maintained the provisions of its race conscious program that were legally defensible within Proposition 2

The Impact of Proposition 209 on California’s MWBEs

1,100,000,000 1,000,000,000 900,000,000

San Jose Oakland San Francisco

800,000,000 700,000,000 600,000,000 500,000,000 400,000,000 300,000,000 200,000,000 100,000,000 0

State of California

209. The percentage of contracts to MWBEs never recovered to pre-Proposition 209 levels. Furthermore, San Francisco appears to have stopped collecting and/or reporting MWBE data in the few years following the Coral Construction case, so it is not possible to know how far contracting with MWBEs dropped off. A likely estimate would be that the majority of contracting with MWBEs disappeared.

Additional impacts on MWBE contracts occurred in San Jose and Oakland. San Jose continued its MWBE sub-contracting goal and outreach program on city construction projects until the Hi-Voltage Wire Works decision in February 2000, which ruled against the City of San Jose’s MWBE policy. This resulted in a loss of approximately $20 million per year (in Oct. 2014 $) for MWBEs who sought to be sub-contractors on San Jose construction projects. The City of Oakland’s MWBE program reached levels of MWBE contracting above 30 percent, which was fully dismantled after Proposition 209, resulting in an approximate loss of $30 million per year (in Oct. 2014 $) for MWBEs. Other jurisdictions were indirectly impacted by Proposition 209. CALTRANS’ Disadvantaged Business Enterprise (DBE) program is driven by federal law, so it was not impacted by Proposition 209.2 However Proposition 209 contributed to an atmosphere where it became acceptable for many in the state to accept CALTRANS’ very low DBE goals and attainment. Los Angeles initiated a race-neutral program after the 1989 Croson decision,3 so its Minority, Women, and Other Business Enterprise (MWOBE) program was not impacted by Proposition 209. However, Proposition 209 took a potentially stronger race-conscious program off the table for Los Angeles MWBE advocates and policy-makers. San Diego ended its MWBE program several years prior to Proposition 209, following the 1989 Croson decision, so it was not impacted

by Proposition 209, however, like Los Angeles, Proposition 209 limited the options of MWBE advocates.

The state MWBE program and the San Francisco MWBE program were consistent with the 1989 Croson decision and other national jurisprudence, including use of disparity studies. These programs, as well as the CALTRANS DBE program of the early 1990s, had some of the highest MWBE and DBE outcomes of any state or local program in the country. Even today, Maryland is one of the only states that can match the 19 percent MWBE spending that California attained from 1994 to 1995. Likewise, the CALTRANS DBE program attained 25 percent DBE spending from 1992 to 19954, before it was gutted by Governor Pete Wilson’s Executive Order W124-95 in June 1995. Few, if any, states today can match California’s 25 percent in the early 1990s. Similarly, San Francisco had an MWBE percentage of 31 percent from 1992 to 1995, which is higher than the MWBE percentage of any of the 20 largest cities today.

Comparing state MWBE contracting with state Small Business Enterprise (SBE) contracting between 1990 and 1997 shows that contracting levels of these two programs rose and fell together. While this paired trending might be coincidental, it is more likely that when the State felt an opening for more diverse procurement it found ways to increase both MWBE and SBE procurement. When the State felt pressure to decrease MWBE procurement, it also felt pressure to decrease SBE procurement. Therefore, it is not likely that most of the pressure against the MWBE program was coming from SBE firms, that is, small businesses owned by white males. Rather the pressure against both of these programs was likely coming from larger contractors, the main financial contributors to the campaign to pass Proposition 209, as well as other large businesses, including corporations.

1 July 1, 1992, to June 30, 1995.

2 CALTRANS MWBE program on projects only with state funds was ended June 30, 1997, with Proposition 209, just as with every state agency.

3 On January 23, 1989, the U.S. Supreme Court issued a 6-3 decision in City of Richmond v J.A. Croson Co. against the City of Richmond, Virginia’s ability to calibrate its MBE contracting goals to the percentage of minority population in the city.

However, it upheld the right of the City of Richmond and all public entities to have race-conscious procurement programs based on availability as shown in disparity studies. It remains the primary legal decision guiding MWBE policies.

4 July 1, 1992, to June 30, 1995.

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Methodology Proposition 209 not only ended race-conscious programs in California, it unnecessarily ended the collection of procurement data related to race, ethnicity, and gender in most jurisdictions of California that had previously been collecting that data.5 Therefore, it is only possible to state the potential loss of contract dollars due to Proposition 209 and not the actual dollars lost. In the case of San Francisco and Oakland, data began to be collected again only years later. However, too much time had passed in between to be able to properly use this data to measure the impact of Proposition 209. The question remains as to how much of the MWBE contracting prior to Proposition 209 continued after its passage, whether in a race-neutral SBE program or in the general procurement process of the jurisdiction.

One guide for this question is CALTRANS, which went from a 22 percent average DBE contracting, using a race-conscious approach in the four years prior to EO W124-95, to an average of 4.6 percent from FY 2007-2011 when using a completely race-neutral approach. The CALTRANS drop of 79 percent is one of the better indicators demonstrating how MWBE (DBE) contracting was impacted when a race-conscious approach changed to a race-neutral approach. Because California became more racially diverse in the years from the early 1990s to the late 2000s, the effective decline could be even greater than 79 percent.

Aside from CALTRANS federal projects, the only other jurisdiction that continued to collect MWBE data after Proposition 209 was the City of Los Angeles. Consistent Los Angeles data is limited only to the Department of Public Works, though. The Los Angeles data indicates that Proposition 209 may have had a negative impact on MWBE contracting, however it is an indirect impact since Los Angeles only had a race-neutral program prior to Proposition 209. This study mostly focuses on data from programs that were directly affected by Proposition 209 and not jurisdictions like CALTRANS or Los Angeles.

Most jurisdictions did not have a race-conscious contracting program in place at the time of Proposition 209, so they were not directly impacted by it. However, Proposition 209 prevented elected officials in those places, like Los Angeles and San Diego, from initiating a race-conscious program. This is an indirect impact that we take note of, but do not attempt to quantify.

For those jurisdictions with a race-conscious program, we use an average of several years of data rather than one year of data where possible, since percentages and dollar amounts can vary quite substantially from year to year. Fiscal years of the State of California and the various cities mentioned in the report are July 1 to June 30.

Generally, inflation-adjusted dollars to October 2014 are used throughout the report to make it easier for the reader to comprehend the scale of the loss of MWBE contracting opportunity. Data tables for jurisdictions include both nominal and inflation-adjusted dollar amounts.

5 The State of California, San Diego, Los Angeles County, Oakland, San Jose (after Hi-Voltage Wire Works), and San Francisco (from 2005 to about 2009), all stopped collecting procurement data based on race and gender after passage of Proposition 209, although San Diego, San Francisco, and Oakland have begun collecting that data more recently in their local small business programs. The failure of Proposition 54 in 2003 maintained the right of state and local governments to collect data based on race, ethnicity, and gender.

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The Impact of Proposition 209 on California’s MWBEs

Background California was once a national leader in its affirmative action and race-conscious contracting programs.

San Francisco and Oakland adapted quickly to the earlier mentioned 1989 Croson decision with disparity studies to guide their MWBE program formulation. California’s MWBE program applied in all state agencies, leading to one of the highest MWBE levels among the 50 states in FY 1994-95. Similarly, the DBE level of CALTRANS in the early 1990s was among the highest of all 50 state transportation agencies.

Some have argued that negative opinions of affirmative action were caused by fighting over a limited resource, be it admission to a prestigious university or contracting dollars. However, although there was a recession in 1990-1991, by 1992 the economy began a long period of growth. Any economic tensions leading to Governor Wilson’s Executive Order W124-95 in 1995 and Proposition 209 in 1996 were not fed by difficult economic times where different groups might be fighting for business survival. Rather, it would appear to come out of tension related to deciding who was going to benefit from the period of protracted economic growth in the mid-1990s.

At the same time, California was approaching “majority-minority” status in the mid-1990s. California went from 57 percent non-Hispanic white in 1990 to 47 percent non-Hispanic white in 2000, becoming majority-minority in 1997, just a few months after Proposition 209 passed. It is likely that white fears over losing majority status played a significant role in Proposition 209 passing. The combination of the nearing majority status for the state’s minorities, combined with protracted economic growth and an affirmative action program that benefited the state’s minorities, was a formula that favored what many advocates describe as a misinformation campaign that led to the passage of Proposition 209 in November 1996.

How California Lost Its National Leadership on Race Conscious Contracting

VOTE 1990: Pete Willson elected governor of California.

1990s: State MWBE procurement levels and DBE contracting within CALTRANS peak.

1992: Economy begins period of growth.

1995: Gov. Wilson begins run for President. His views on affirmative action shift.

1995: University of California Board of Regents votes to discontinue use of race and gender in admissions

1997: California becomes majority-minority state.

1997: Three-judge panel in federal court upholds Prop. 209.

1997: State of California, Los Angeles County and Oakland end MWBE programs.

I II I I II I I I

1996: Proposition 209 passes.

Federal Judge Thelton Henderson blocks its implementation, based on his opinion that it violated the Equal Protection Clause.

DE

NIE

D

2000: San Jose ends MWBE program after the Hi-Voltage Wire Works decision.

2004: San Francisco ends MWBE program after the Coral Construction decision.

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Just after Pete Wilson was elected Governor of California in November 1990, both state MWBE procurement levels and DBE contracting within CALTRANS were hitting their peak. For several years under Governor Wilson’s tenure, these programs continued to flourish.

In 1995 Wilson began to run for President on the Republican ticket. He announced his candidacy on August 29, 1995. In mid-1995, his actions and rhetoric towards affirmative action shifted. The first indication of this shift was on June 1, 1995, when Wilson signed the extensive Executive Order (EO) W124-95, which largely took aim at the state’s affirmative action in employment and contracting policies.

Employment with the state seemed to be the main focus of the EO as it was mentioned several times, while state government contracting was mentioned only once. In practical terms, the only impact on government contracting was on the CALTRANS DBE program. University admissions policies were not mentioned. However, one month later, in July 1995, The University of California Board of Regents passed Special Policy 1 which discontinued the use of race and gender in admissions to the University of California system, which was in process when Proposition 209 was passed. As noted by many reports at the time, Wilson believed championing anti-affirmative action policies would bolster his presidential ambitions.6 After he dropped out of the race in October 1995, the anti-affirmative action forces continued to press forward with Proposition 209.

Proposition 209 passed in November 1996. Three weeks later, federal Judge Thelton Henderson blocked its implementation, based on his opinion that it violated the Equal Protection Clause. On April 9, 1997, a three-judge panel of the federal 9th Circuit Court of Appeals upheld Proposition 209, allowing it to become law. Curiously, California’s MWBE program did not end immediately but continued two and a half months until the end of the fiscal year, June 30, 1997.

While MWBE programs in Los Angeles County and Oakland ended soon after Proposition 209 passed, both San Jose and San Francisco continued their MWBE programs after the ballot measure, maintaining that the legal basis for such programs was established by disparity studies which not only allowed for, but required, remedial action. Furthermore, Proposition 209 itself required them not to discriminate based on race or gender – something which might occur without a race-conscious program. Both cities were sued. In both cases, courts ruled against the race-conscious programs.

San Jose ended its MWBE construction program after the Hi-Voltage Wire Works decision in 2000 and San Francisco ended its MWBE program after the Coral Construction decision in 2004, more than seven years after the passage of Proposition 209. San Francisco, unlike San Jose, eventually developed a race-neutral MWBE program.

Examining the Impact of Proposition 209 on MWBE Procurement in California Jurisdictions State of California (all agencies) The largest procuring jurisdiction in California is the state government. State contracts are not concentrated in Sacramento, instead they are generally spread throughout the state. Given that the state had an equal opportunity procurement program prior to Proposition 209, the biggest impact of Proposition 209 on contracting was felt at the state government level. The state’s MWBE program was managed by the California Department of General Services. The state MWBE percentage reached 18.7 percent in FY 1994-95. Within the Department of General Services, the MWBE percentage made steady increases from FY 1988-89 to FY 1993-94, when it reached 23.3 percent of all state procurement. It slightly increased the next year, reaching 24.5 percent, before dropping below 20 percent in FY 1995-96 and FY 1996-97. The policy and program were discontinued July 1, 1997, as a result of Proposition 209.

6 http://www.nytimes.com/1995/06/02/us/california-governor-moves-quickly-against-affirmative-action.html 6

The Impact of Proposition 209 on California’s MWBEs

Figure 2

MWBE and SBE Procurement by the California Department of General Service Before and After Proposition 209

35% 30% 25% 20% 15% 10% 5% 0%

86-87 87-88 88-89 89-90 90-91 91-92 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-01 01-02

MBE%

WBE%

MWBE

SBE%

Note: MBE includes women of color, while WBE does not. MWBE is simply the sum or MBE and WBE. Prior to 1996-97, SBE included primarily small businesses owned by white males.

Looking atFigure both the and the SBEDepartment procurementoflines of Figure there are three 3 MWBELos Angeles Public Works2,Contracting withimportant MBEs and WBEs conclusions: 18% of MWBE procurement by the Department of General Services (DGS) in the early 1990s was 1. The growth 16.4% accompanied 16% by growth in SBE procurement (at that time, small businesses owned by white males).

While procurement with these two segments grew, procurement from large contractors and other large 14.0% 14%shrunk.This is demonstrated by the large businesses gains in MWBE procurement from FY 1992-93 to FY 1994-95, just as the SBE program itself was reaching new heights, essentially doubling from FY 199212% 93 to FY 1993-94.

10% 2. As MWBE procurement with the DGS declined from FY 1994-95 to FY 1996-97, procurement with small 8% primarily owned by white males, also fell. SBE procurement dropped from 29 percent in businesses, 7.1% FY 1994-95 6% to 26 percent in FY 1995-96, and then to 21 percent in FY 1996-97. This makes it appear 6.3%were related to the large as if the political forces that pushed for Proposition 209 in November 1996 3.6% 4% business economic forces that pushed for a larger state procurement share from 1995 to 1997 at the 2.5% 2.2% expense2% of both MWBE firms and white male SBE firms.

1.7% 3. The DGS0% data makes it appear that few MWBE firms successfully entered the state’s race-neutral SBE 1991-1995 avg Proposition 1997-2001 avg 2001-2009 avg 2011-2014subdued avg program immediately following 209, since the SBE procurement levels remained until mid-1999. Then, during the first year of the Gray Davis administration, SBE procurement bounced MBE back up to 25 percent in FY 1999-2000, perhaps then including more WBE minority and women owned firms. Today, the State does ask firms to voluntarily indicate their MWBE status, but the reported MWBE procurement numbers are not reliable and therefore not comparable to the pre-Proposition 209 numbers, which were based on certified firms.

Like the SBE program of the state, the SBE program within CALTRANS saw a major up-tick during the Gray Davis administration, specifically in July 2000, the third year of his administration.

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25% 20%

Los Angeles

15% Los Angeles does not have historical records for procurement in general. Instead there is a limited amount of data for one of the larger city departments, the Department of Public Works (DPW). City 10% staff estimate that DPW contracting comprises about 30 percent of the city’s total procurement. Los Angeles reformulated its MWBE program into a mostly race-neutral Minority, Women, and Other Business 5% Enterprise (MWOBE) program after the 1989 Croson decision.7 The MWOBE program was a modified SBE program 0%which included outreach and voluntary sub-contracting with MBEs, WBEs, and OBEs (white-male 86-87 enterprises).

87-88 88-89 89-90 90-91 91-92 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-01 01-02 owned business

Therefore, Proposition 209 should not have had a direct impact Angeles program. However, the MBE% WBE% MWBEon the LosSBE% numbers show a moderate drop after Proposition 209: MBE contracting fell from 16.4 percent in 1991-95 to 14.0 percent in 1997-2001.8 WBE procurement fell at a slightly faster pace, from 3.6 percent before to 2.5 percent after. Thus, Proposition 209 may have had slight impact on the program. The big drop in Los Angeles DPW contracting with MWBE firms happened from 2001 to 2009.

Figure 3 18% 16%

Los Angeles Department of Public Works Contracting with MBEs and WBEs 16.4% 14.0%

14% 12% 10% 8%

7.1%

6% 4%

6.3%

3.6%

2.5%

2% 0%

1.7% 1991-1995 avg

1997-2001 avg

2001-2009 avg

MBE

WBE

2.2% 2011-2014 avg

The 2001 drop in MWBE contracting follows the San Jose Hi-Voltage Wire Works decision. It also roughly corresponds with the election of James Hahn as Mayor. It is not clear if the 2001 decline in MWBE contracting was due more to a reformulation of the program following the Hi-Voltage Wire Works decision or to a political change at the Mayor level. If the former, then Proposition 209 was a major contributor to the drop in MWBE contracting in Los Angeles during the 2000 decade.

7 The City of Los Angeles most likely could have maintained its race-conscious program if it had carried out a disparity study.

8 These periods are July 1, 1991, to June 30, 1995, and July 1, 1997, to June 30, 2001.

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The Impact of Proposition 209 on California’s MWBEs

Figure 4 Estimated Loss in Los Angeles DPW MWBE Contract Dollars Following Proposition 209 Year Range MBE Percentage Estimated Annual Loss WBE Percentage Estimated Annual

Loss 1991-1995

16.4%

N/A

3.6%

N/A

1997-2001 14.0%

$2,773,754

2.5%

$1,258,374

2001-2009 6.3%

*$11,573,330

1.7%

*$2,099,353

2011-2014 7.1%

*$10,592,427

2.2%

*$1,526,802

* Dollars lost from 2001 to present might not be related to Proposition 209. Note: Based on the annual total contract value of $114,224,587, the 2011-2014 average. Actual annual total contracts are not available for previous years. All estimated annual losses are in January 1, 2013 dollars.

The change from 1991-1995 to 1997-2001 is the best estimate of the loss in MBE and WBE contracts within the Department of Public Works due to Proposition 209. The direct estimated loss due to Proposition 209 is $2.8 million annually for MBEs and $1.3 million annually for WBEs, in January 2013 dollars. Proposition 209 may be considered an indirect cause of the additional annual loss for 2001 and beyond, but internal dynamics within the City of Los Angeles are the likely primary cause. Since Los Angeles already had a race-neutral program prior to Proposition 209, the impact was not more substantial.

San Francisco The City and County of San Francisco was the last jurisdiction in California to operate a race-conscious MWBE program following Proposition 209. Its program continued until 2004. Historically, San Francisco has had the strongest equal opportunity contracting programs of any local government in the state. There are four primary moments of change in San Francisco’s program: In 1991 and 1992, the City responded to the Croson decision and an Associated General Contractors lawsuit, with a disparity study which led to a robust MWBE program consistent with Croson. One change was the addition of a sub-contracting program.

The response to Proposition 209 in FY 1996-97, led to a one-year drop in percentage of contract dollars to MWBE amounting to about 35 percent of pre-Proposition 209 levels. San Francisco modified its race and gender conscious program, with MWBE levels returning to about 60 percent of pre-Proposition 209 levels.

The Coral Construction decision in 2004, based on Proposition 209, stripped San Francisco of its raceconscious program.

In an effort to modernize the Local Business Enterprise (LBE) program, which includes MBE and WBE firms, the LBE program was moved from the Human Right Commissions to the Office of Contracts Administration, in the General Services Agency, in 2011. This brought the LBE program much closer to where contracts are administered, tracked, and reported. In addition, at this time numerous promising race-neutral practices were initiated or enhanced which could result in greater MWBE participation.

The percentage of Minority Business Enterprises (MBE) procurement in San Francisco averaged 21.5 percent from 1984 to 1987, based on the dollar value of contracts. A lawsuit from the Associated General Contractors (AGC) against the city in 1991 did little to change the long-term results of the MWBE program, as MBE procurement maintained itself at an estimated 25.3 percent from 1992 to 1995.

Contracting to Women Business Enterprises (WBEs) - white women owned firms - increased from 2.6 percent prior to 1992 to an estimated 5.6 percent from 1992 to 1995. The overall rate of 30.9 percent procurement with MWBE firms from 1992 to 1995 was likely one of the highest city rates in the country.

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Figure 5 Summary of MWBE Contracting by San Francisco, 1984 to 2002

1984-1987

MBE percent

WBE percent

WBE/LBE percent

MWBE percent

21.5%

2.6%

24.1%

1992-1995, annual average, prime and sub

25.3%*

5.6%*

30.9%

1997-2002, annual average, prime and sub

14.1%

10.2%

* estimate. Note: each beginning year commences July 1 and each end year terminates June 30.

At the time of Proposition 209’s passage, San Francisco operated its MWBE program under a policy encapsulated in the Civil Code Chapter 12.A.D. which remained law until the Coral Construction case in 2004. While the policy did not significantly change due to Proposition 209, the City made significant changes to the program. The level of MBE contracting fell dramatically from 25.3 percent prior to Proposition 209 to 14.1 percent in the first six years after Proposition 209. This drop of 11.2 percentage points resulted in an annual decline of an estimated $65 million to MBE firms each year from 1997 to 2002 (Oct. 2014 dollars).

It is not possible to calculate the change in WBE contracting following Proposition 209, as the city seemed to switch its data definitions to track WBE/LBE contracting together, which includes both Women Business Enterprises and Local Business Enterprises, which at that time meant local small businesses owned by white male(s).

San Francisco does not have sufficiently reliable MWBE data following the Coral Construction case to determine the precise drop-off caused by Proposition 209 and Coral Construction, but it is likely that MWBEs secured only a few San Francisco contracts. More recent MWBE data indicates that some of the pre-Coral procurement level has been gained back by MWBEs in San Francisco’s Local Business Enterprise program, which could be described as consisting of both a local SBE program and a race-neutral MWBE program.

San Diego San Diego had an MWBE program up until the time of the Croson decision (1989-1990), when it was disbanded. Between 1990 and 1996 the City attempted some moderate race-conscious remedies, without a disparity study, but was challenged by the AGC. San Diego initiated a Local Small Business Enterprise program in 2010. The impact of Proposition 209 was negligible in San Diego, although it did close the door on the possibility of any initiative for a renewed race-conscious program.

Oakland The City of Oakland, like San Francisco, had a race-conscious MWBE program prior to Proposition 209 that resulted in a high percentage of MWBE procurement. For the three fiscal years from July 1991 to June 1994, Oakland averaged $91.8 million annually in procurement. Over one-fourth of that – 28.4 percent – went to MBEs and another 4.8 percent went to WBEs. This ended with Proposition 209 although some firms entered Oakland’s Community Business Enterprise (CBE) program – a small business enterprise procurement program consisting only of local firms.

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The Impact of Proposition 209 on California’s MWBEs

Figure 6 Summary of Oakland MBE and WBE Procurement Prior to Proposition 209

Total MBE Amount MBE Percent WBE Amount WBE Percent Procurement (male and female) (Caucasian female)

1991-1994 annual average

$54,919,535 $15,609,638

Oct. 2014 dollars

$91,823,763

28.4%

$26,098,832

$2,614,601

4.8%

$4,371,532

Note: Contracting information between 1994 and 2010 is not readily available.

From 2010 to May 2014, Oakland had MBE participation of 15.0 percent and WBE participation of 2.6 percent, through its CBE program which requires 20 percent participation of Local CBEs. Without late 1990s data, it is impossible to know the impact of Proposition 209. Current Oakland data for MWBE procurement indicates levels about half of those prior to Proposition 209.

San Jose San Jose is another city where there was a significant drop-off in contracting to MWBEs due to Proposition 209, but where it is impossible to determine how much, due to a lack of data. A conservative estimate would be $20 million per year in today’s dollars.

First established in 1983, San Jose’s MWBE program applied to construction contracts over $50,000 – with participation goals of 5 percent that included good faith outreach to at least four MWBE firms in each trade, a program design that was based on the findings of the city’s 1990 disparity study. San Jose’s modest MWBE program continued beyond Proposition 209 until 2000, when the Hi-Voltage Wire Works decision ended the program. The City now has a Small Local Business Enterprise program which likely regains some of the previous MWBE contracting.

California Department of Transportation (CALTRANS) CALTRANS greatly changed its Disadvantaged Business Enterprise (DBE) program 16 months before Proposition 209, due to Governor Wilson’s Executive Order (EO) W124-95, which called on the state to do no more than the minimum necessary under federal law. CALTRANS apparently interpreted this EO to mean that it should fulfill its DBE requirements under federal law using race-neutral means, something allowed by the Federal Highway Administration (FHWA) if CALTRANS could show through its disparity studies that DBEs are not discriminated against in the race-neutral process. Since the DBE program is federal, Proposition 209 did not have direct impact on CALTRANS’ DBE program although it contributed to a climate where a low level of DBE contracting became de facto acceptable. Proposition 209 did impact CALTRANS contracting with MWBE firms on projects funded only by state funds.

Of all the jurisdictions examined, CALTRANS has the most complete data, however it is only indirectly relevant. The CALTRANS data is limited to projects funded with federal transportation dollars – in most cases FHWA. CALTRANS stopped collecting DBE (MWBE) data for projects funded by the state, with no federal funds. On federally funded projects, CALTRANS is required to follow FHWA (or FAA or FTA) policies related to contracting.

Proposition 209 should not have had any impact on CALTRANS contracting on federally-funded projects.

However, at the very least, Proposition 209 had an indirect impact on CALTRANS federal projects, in that the same political forces that backed Proposition 209 were already busily working the year before stifling and curtailing DBE participation on federal CALTRANS projects, using EO W124-95. Furthermore, Proposition 209 may have limited the mindset of CALTRANS Managers, causing them to minimize utilization of race-conscious strategies in CALTRANS’ DBE program. Today, that mindset seems so ingrained that even without Proposition 209, CALTRANS may not do anything differently.

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It may come as a shock for those familiar with CALTRANS of the last ten years, but from 1992 to 1995 CALTRANS had some of the highest DBE outcomes of any of the 50 state transportation agencies, ranging from 20.8 percent to 27.7 percent. Then in July 1995 – the start of fiscal year 1996 – DBE contracting fell dramatically, to 13.5 percent in that year. This was nearly a 50 percent drop from FY 1995. It was not a one year fluke. In FY 1997, when Proposition 209 was passed, and FY 1998, DBE contracting was similar to the low FY 1996 level. This helps demonstrate that Proposition 209 did not have a direct impact on DBE contracting.

Figure 7

CALTRANS DBE Contracting, 1992 to 2000

Fiscal Year

DBE Outcome

White Women, DBE

Person of Color, Male, DBE

Person of Color, Female DBE

FY 92

20.8%

6.3%

13.8%

0.7%

FY 93

22.8%

7.0%

14.0%

1.7%

FY 94

27.7%

7.7%

19.1%

0.9%

FY 95

25.8%

6.6%

18.1%

1.1%

FY 96

13.5%

2.4%

10.0%

1.2%

FY 97

12.2%

2.9%

8.6%

0.7%

FY 98

13.4%

4.7%

7.7%

1.0%

FY 99

8.4%

1.8%

5.7%

0.9%

FY 00

10.6%

3.5%

6.2%

1.0%

Shading indicates year immediately following Executive Order W124-95.

DBE levels fell further in FY 1998-99 – to below 10 percent, where it has remained most years since, putting California in the company of states with much less diversity, such as Nebraska and Vermont, in terms of level of DBE contracting. From perhaps being the top performing state in the country in the early 1990s, with its DBE contracting, California has fallen to one of the two worst performing states relative to its diversity (only Hawaii may challenge California for that dubious crown). The political climate created and maintained by Proposition 209 certainly contributed to CALTRANS’ poor DBE outcomes, but it does not appear to be the primary cause.

Conclusion California’s MWBEs lost somewhere between $610 million and $690 million ($1 billion to $1.1 billion in today’s dollars) in public contracts directly due to Proposition 209. The biggest losses occurred with the state of California and city programs in San Francisco and Oakland. Eventually some MWBE firms were able to gain back some of those contract dollars through race-neutral small business enterprise programs, but many other procurement and sub-contracting processes remain effectively closed to MWBEs due to the changes brought by Proposition 209.

California jurisdictions have responded to Proposition 209 and related executive orders and judicial decisions in different ways. San Francisco has most consistently attempted to create and maintain equal opportunity in its procurement process.9 While Los Angeles failed to respond to the Croson decision in a way that would maximize inclusion in the procurement process, since Proposition 209 it has maintained the political will to have an innovative race-neutral MWBE program. Other jurisdictions, like San Diego,

9 Jurisdictions in Washington State, which has a similar measure as Proposition 209, have gone even further than San Francisco, including the State of Washington, King County, and the City of Seattle.

12

The Impact of Proposition 209 on California’s MWBEs

Oakland, and the State of California have made efforts to increase fairness within their Small Business Enterprise programs in the last several years. But all of these jurisdictions lack the race-conscious tools that would allow them to more completely tackle discrimination in the procurement process. Ironically, one of the jurisdictions that still has those tools, CALTRANS through its federal DBE program, has shown some of the least political will to diversify its contracting process.

While California is a majority-minority state in terms of population, thanks to Proposition 209 it is clearly a minority-minority state with its public procurement dollars.

APPENDIX – Data Tables State of California, MWBE Procurement, 1987-1998 Fiscal Year

Total Procurement

1987-88

3,644,583,000

1988-89

Total in MWBE Oct. 2014 $

MWBE in Oct 2014 $

MWBE%

MBE%

WBE%

7,488,916,274 366,652,000

753,399,258

10.1%

6.8%

3.3%

3,339,286,000

6,563,383,219 276,065,000

542,607,129

8.3%

6.9%

1.4%

1989-90

4,377,141,000

8,199,429,736 268,315,576

502,619,110

6.1%

3.9%

2.2%

1990-91

3,819,892,000

6,758,333,959 249,791,813

441,943,514

6.5%

4.0%

2.6%

1991-92

3,949,206,374

6,794,724,036 251,086,167

432,001,028

6.4%

4.2%

2.1%

1992-93

3,822,490,816

6,380,214,144

No data

No data

No data

No data No data

1993-94

4,031,286,297

6,555,893,146

No data

No data

No data

No data No data

1994-95

2,785,213,203

4,408,676,843 519,631,833

822,518,300

18.7%

1995-96

3,427,148,274

5,285,599,846

No data

No data

No data

No data No data

1996-97

3,560,355,927

5,321,661,875

No data

No data

No data

No data No data

1997-98 4,675,121,329 6,875,367,498

0

0

0%

11.2%

0%

7.5%

0%

State of California, SBE Procurement, 1987-2001 Fiscal Year Total Procurement Total in Oct. 2014 $

SBE

SBE in Oct 2014 $

SBE%

1987-88 3,644,583,000 7,488,916,274 393,069,000 807,681,107 16.8% 1988-89

3,339,286,000

6,563,383,219

328,879,518

646,414,326

14.9%

1989-90 4,377,141,000 8,199,429,736 382,347,188 716,227,534 12.2% 1990-91 3,819,892,000 6,758,333,959 419,114,726 741,517,636 13.0% 1991-92 3,949,206,374 6,794,724,036 363,343,451 625,142,939 11.2% 1992-93 3,822,490,816 6,380,214,144 332,556,701 555,078,630 8.7% 1993-94 4,031,286,297 6,555,893,146 407,159,916 662,145,208 10.1% 1994-95 2,785,213,203 4,408,676,843 431,874,913 683,609,041 15.1% 1995-96 3,427,148,274 5,285,599,846 387,267,755 597,272,783 11.3% 1996-97 3,560,355,927 5,321,661,875 419,404,543 626,883,720 11.8% 1997-98

4,675,121,329

6,875,367,498

397,385,313

584,406,237

8.5%

1998-99

3,950,574,092

5,716,006,449

430,612,576

623,044,703

10.9%

1999-2000

4,607,446,304

6,490,417,077

566,468,173

797,972,339

12.3%

2000-01

3,955,918,608

5,381,069,166

651,588,071

886,327,760

16.5%

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Department of General Services (DGS), California, MWBE & SBE Procurement, 1987-1998 (in $millions) Fiscal DGS DGS Total in MWBE MWBE MWBE% MBE% WBE% SBE SBE in SBE% Year Procurement, Oct. 2014 $million in Oct $million Oct 2014

$million $million 2014 $million 1987-88

927

1,904

70.5

144.9

7.6%

3.6%

4.0% 168.79

346.8

18.2%

1988-89

832

1,635

4.1

8.1

0.5%

0.4%

0.1% 149.13

293.1

17.9%

1989-90

1,242

2,327

48.1

90.1

3.9%

0.5%

3.4% 190.98

357.8

15.4%

1990-91

1,147

2,029

94.9

167.9

8.3%

4.5%

3.8% 175.68

310.8

15.3%

1991-92

1,070

1,841

117.1

201.6

11.0%

6.3%

4.7% 191.84

330.1

17.9%

1992-93

911

1,520

144.5

241.2

15.9%

10.1%

5.8% 143.90

240.2

15.8%

1993-94

700

1,139

163.4

265.7

23.3%

14.6%

8.8% 224.12

364.5

32.5%

1994-95

849

1,343

208.0

329.2

24.5%

13.7% 10.9% 245.38

388.4

28.9%

1995-96

738

1,138

147.0

226.7

19.8%

12.4%

7.4% 191.32

295.1

25.9%

1996-97

591

884

114.0

170.4

19.3%

11.4%

7.9% 126.04

188.4

21.3%

1997-98 719 1,057 0 0 0 0 0 140.37 206.4 19.5% 1998-99 576 833 0 0 0 0 0 119.45 172.8 20.8% 1999-2000 950 1,338 0 0 0 0 0 234.21 329.9 24.7% 2000-01 927 1,904 0 0 0 0 0 168.79 346.8 18.2%

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The Impact of Proposition 209 on California’s MWBEs

CALTRANS DBE Contracting 1988 to 2010 Fiscal Year

Total Contracts Awarded

Total in Oct. DBE Outcome 2014 Dollars

DBE Outcome in Oct. 2014 Dollars

DBE Rate

1987-88

$709,500,262

$1,437,224,152

$167,117,713

$338,527,871

23.6%

1988-89

$1,064,895,891

$2,057,910,463

$190,667,037

$368,463,897

17.9%

1989-90

$997,390,745

$1,831,184,265

$180,536,061

$331,459,657

18.1%

1990-91

$1,150,405,790

$2,030,251,068

$223,826,474

$395,011,866

19.5%

1991-92

$1,108,687,560

$1,901,469,781

$230,618,681

$395,525,727

20.8%

1992-93

$1,019,348,385

$1,700,316,255

$232,542,423

$387,890,605

22.8%

1993-94

$961,031,365

$1,563,500,797

$266,563,207

$433,671,368

27.7%

1994-95

$1,605,679,075

$2,540,250,920

$414,646,857

$655,988,532

25.8%

1995-96

$1,094,530,512

$1,682,560,437

$147,814,835

$227,227,465

13.5%

1996-97

$906,929,255

$1,363,869,916

$110,582,796

$166,298,030

12.2%

1997-98

$834,537,264

$1,238,380,146

$112,171,632

$166,452,869

13.4%

1998-99

$1,506,646,133

$2,186,987,998

$127,279,628

$184,754,079

8.4%

1999-2000

$1,430,120,269

$2,006,172,798

$152,034,580

$213,274,118

10.6%

2000-01

$2,363,997,479

$3,228,305,283

$233,465,559

$318,823,562

9.9%

2001-02

$3,101,198,927

$4,177,642,950

$253,658,128

$341,704,326

8.2%

2002-03

$905,903,178

$1,193,689,318

$107,212,272

$141,271,327

11.8%

2003-04

$1,661,145,172

$2,133,486,919

$171,923,319

$220,809,209

10.3%

2004-05

$958,505,986

$1,189,074,289

$99,109,937

$122,950,800

10.3%

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Los Angeles Department of Public Works, MBE and WBE Contracting Year

MBE% WBE%

1991-92 16.9% 3.7% 1992-93 14.9% 3.2% 1993-94

No data

No data

1994-95 17.4% 3.8% 1995-96

No data

No data

1996-97 9.3% 8.0% 1997-98 12.1% 1.5% 1998-99 10.0% 3.5% 1999-00 12.3% 3.7% 2000-01 21.5% 1.2% 2001-02 6.4% 3.2% 2002-03 1.8% 0.6% 2003-04 13.8% 0.4% 2004-05 7.0% 0.6% 2005-06 3.1% 0.9% 2006-07 7.0% 3.0% 2007-08 5.2% 2.7% 2008-09 5.9% 2.4%

San Francisco, MWBE Procurement, 1984-1995 Fiscal Year Total

Procurement

Total in MWBE Oct. 2014 $

MWBE in Oct 2014 $

MWBE%

1984-85

151,487,810

341,254,319

52,287,271

117,786,752

17.4%

13.7% 3.7%

1985-86

216,762,023

470,228,026

123,519,080

267,953,455

27.3%

25.4% 1.8%

1986-87

151,671,120

324,869,003

81,010,141

173,518,094

26.3%

23.8% 2.5%

1990-91

347,549,669

614,901,345

31,176,800

55,159,472

9.0%

6.5%

1992-93

365,853,956

610,655,904

109,216,333

182,295,688

29.9%

1993-94

413,034,110

671,698,136

118,938,552

193,424,228

28.8%

1994-95

426,710,726

675,434,719

144,976,637

229,481,586

34.0%

Note: No data for 1987-88, 1988-89, 1989-90, 1991-92.

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The Impact of Proposition 209 on California’s MWBEs

MBE% WBE%

2.5%

San Francisco, MBE and WBE/LBE Procurement, 1997-2003 Fiscal Year Total Total in $ MBE MBE MBE% WBE & LBE WBE & LBE WBE%

Procurement Oct. 2014 Procurement in Oct 2014 $ Procurement in Oct 2014 $ & LBE 1997-98

301,168,992 442,907,756 34,978,334 51,440,141 11.6%

29,382,346

43,210,521

9.8%

1998-99

656,764,364 950,259,191 70,109,644 101,440,238 10.7%

89,767,084

129,882,194 13.7%

1999-00

585,562,712 824,870,433 104,914,096 147,790,380 17.9%

82,454,546

116,152,063 14.1%

2000-01

478,374,681 650,712,894 56,954,012 77,472,139 11.9%

31,486,187

42,829,332

6.6%

2001-02

604,516,576 811,374,699 110,693,746 148,571,782 18.3%

41,163,692

55,249,400

6.8%

2002-03

132,055,909 172,942,254 10,344,794 13,547,686 7.8%

12,162,750

15,928,506

9.2%

Note: 2002-03 data is from a partial fiscal year.

Acknowledgments and Credits This report was made possible by a grant from the Surdna Foundation and with support and encouragement by Shawn Escoffery, Director of Surdna’s Strong Local Economies program. The Equal Justice Society would like to thank author Tim Lohrentz for his outstanding research and writing, as well as Michael Sumner for his significant contributions. EJS President Eva Paterson and Director of Communications Keith Kamisugi, and California Civil Rights Coalition Statewide Director Claudia Pena assisted with this report. Renay R. Prince, Public Records Officer for the California Department of General Services, located and shared with us an impressive amount of relevant state reports. We also express our appreciation to the many jurisdictions that provided us with data including the City of Los Angeles, City and County of San Francisco, City of Oakland, and CALTRANS. Thank you the Coalition for Economic Equity and Fred Jordan for their assistance. Photo of San Jose City Hall in infographic on page 14 is by Christopher Chan, used under Creative Commons license (https://flic.kr/p/dLoWoV).

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“This issue will be around with us for the rest of the century. There’s no question the discussion will go on — and there’s no question that we will remain scarred.”

Fred Jordan, now President of the San Francisco African American Chamber of Commerce, quoted in the San Francisco Chronicle on December 16, 1996.