Greater investment needed to address contracting disparities for North Carolina HUB firms

Historically rooted discrimination and oppression created inequities throughout the United States that have transcended generations. For example, in North Carolina, it is well-documented that many minority-owned businesses have long struggled to find access to capital, expand, and persist in comparison to firms owned by white men. To address some of these issues, the Office of Historically Underutilized Businesses (HUB) was established to help minority-owned firms (based on race, gender, & ability) with procurement & contracting with state entities, among other forms of assistance.

Since the Office’s inception, many state/public entities (e.g., state agencies, public universities, public school districts, local governments, etc.) have failed to meet North Carolina’s established 10 percent contracting requirement with HUB-certified firms. Griffin & Strong, PC conducted a 5-Year HUB Disparity Study and found statistically significant underutilization of most minority- and woman-owned firms for FY 2014-FY 2018. A Disparity Index, which is the percent of all market dollars earned divided by the percent of all available firms in business, was used to make this determination (see chart below). For example, if 14 percent of all minority-owned businesses are in construction and they receive 14 percent of all construction dollars, the Disparity Index is 100. Statistical significance remains when controlling for financial capacity, size of a projects, and other race- or gender-neutral factors such as years in business and staff size, among others. When disaggregated by race, these disparities are even more pronounced.

One Step at A Time Consulting conducted a separate longitudinal study that further illustrated the under-utilization of Black, People of Color, & Indigenous (BIPOC)-owned firms in North Carolina. In the 20 N.C. counties with the largest BIPOC populations, many state/public entities often utilize less than 1 percent of BIPOC firms for their contracting needs. Although this study’s observation period ended in FY 2019, trends are expected to have continued in FY 2020 given current statewide data.

In fact, COVID-19 further exacerbated many of these disparities, and the full extent of the pandemic’s economic impacts are yet to be seen. BIPOC-owned businesses shuttered at an astronomical rate when the pandemic began (see below), and short-term recovery initiatives have not been accessed equally. Equitable policies are needed to begin addressing negative outcomes of the pandemic and rectifying longstanding structural impediments.

Efforts are underway to build a public response. Governor Cooper established the Andrea Harris Social, Economic, Environmental, and Health Equity Task Force to research and analyze disparate outcomes across a range of dimensions that affect the quality of life for everyone in North Carolina. ReToolNC was a statewide grant program that provided $13.3 million in short-term assistance to 688 HUB certified firms affected by COVID-19. Cooper appropriated funds for an additional HUB staff person & a HUB Small Business Enterprise Program in his FY 2021-23 recommended budget. Additional resources, with a focus on how inequities harm people, communities, and the economy, are needed to create a strong foundation for long-term structural change.

Several recommendations were offered by Griffin & Strong, PC and One Step at A Time Consulting on how North Carolina can narrow these gaps moving forward. Actions include, but are not limited to:

• Strengthening enforcement authority of the 10 percent contracting requirement,
• Implementing remedial programs for entities that fail to meet the 10 percent requirement,
• Hiring full-time HUB Coordinators for all State Agencies,
• Increasing awareness of HUBs and forging stronger connections with contracting entities,
• Improving support for small businesses through programs such as the Small Business Task Force, and
• Uniform data collection and centralization.

With federal funds coming from President Biden’s American Rescue Plan, resources are available to support HUBs disproportionately affected by COVID-19, create systems that encourage their expansion, and amplify their contributions to local economies. Governor Cooper’s FY 2021-23 recommend budget, along with Biden’s pending Infrastructure Bill, could be a source of additional investment as well. It is imperative that lawmakers ensure opportunities stemming from all future investments are equitably distributed.

HUB-certified firms are essential to North Carolina’s economic prosperity as they make up roughly 60 percent of all small businesses. Additionally, women- and BIPOC-owned businesses were disproportionately impacted during the nation’s last financial crisis, The Great Recession, and it took over a decade to return to pre-crisis levels — levels which were already disparate. These firms and our state can afford to bear the brunt of budgetary pitfalls and legislative shortcomings once more.

***Note: Griffin & Strong, PC separated and analyzed state agency projects that were under $1 million or $500,000. The state agency graphics depicted in this document represent projects under $500,000. Statistical significance, the magnitude of disparities, and overall trends were similar regardless of project size**