🔒Fair Shot: Minority business owners advocate for greater share of state contracts

Magali Verdugo is no stranger to challenges.

In 2004, she emigrated to America from Ecuador and learned English.

In 2013, she started a construction business, a sector in which only 10% of the workforce and 14% of executives are women.

Last year, as the owner and president of American Building Wreckers, an East Hartford-based demolition and asbestos abatement company, Verdugo had to navigate the impact of COVID — which postponed some projects — to sustain her employee base.

And now, Verdugo is accepting a new challenge: advocating for the state of Connecticut to evaluate whether its set-aside program, designed to guarantee minority business enterprises (MBEs) like hers a minimum percentage of state contracts, is adequately meeting the needs, in light of both a heightened national focus on issues of racial equity and the dire impact of the pandemic on minority-owned businesses.

In Connecticut, which first established its set-aside program in 1977, 25% of all state contracts must be allocated to small businesses and at least 6.25% of contracts must specifically be designated for minority-owned companies.

Thirty-eight states have some form of set-aside programs, according to the National Conference of State Legislatures, but Connecticut is one of only a handful that sets a mandated percentage.

But the 6.25% carve out for minorities has not changed in nearly 35 years.

“The percentage [for state contracts] is too small and there’s not enough area to grow these [minority] contractors to become more valuable to the [construction] industry,” said Charles LeConche, a labor relations specialist for American Building Wreckers.

To encourage the state to examine any disparities in state contracts and, they hope, increase the percentage of state dollars earmarked for minority businesses, Verdugo and LeConche are working with some state lawmakers to pass House Bill 5652 — introduced by Hartford Democratic state Rep. Edwin Vargas — to study the issue. It is one of a handful of House bills currently in the legislature seeking to address racial equity-related concerns.

It’s an issue that is already on the radar of the state Department of Administrative Services (DAS), which administers the set-aside program, according to agency spokeswoman Lora Rae Anderson.

The program, which is enforced by the state’s Commission on Human Rights & Opportunities, can only legally be changed if the state performs a formal disparity study that shows inequities exist for certain minority groups.

And while funding for such a study has not been approved by the legislature in the recent past, Anderson says, Melissa McCaw, the state’s budget chief, intends to commit carry forward dollars in the state budget to fund a disparity study.

“This past year has hit our economy hard and we know … agencies across state government have a role to play in our significant recovery efforts,” Anderson said. “We are optimistic about starting this disparity study and [potentially] making required changes based on its results.”

Needed lifeline

That focus comes as small employers in general and minority-owned businesses in particular contend with the fallout from COVID, which brought racial disparities into sharper focus, says Glendowlyn Thames, deputy commissioner of the Department of Economic and Community Development (DECD).

“Among the sectors most impacted [by the pandemic] were hospitality, tourism and retail and those are traditional industries that minorities and women operate in,” Thames said.

According to the National Bureau of Economic Research, 41% of Black-owned businesses and 32% of Latino-owned companies closed their doors temporarily or permanently last April, at the outset of the pandemic, compared with one-quarter of women-owned companies and 22% of all businesses.

In part, Thames says, that’s because minority-owned firms traditionally experience barriers to access capital through traditional lending institutions. In fact, a JPMorgan Chase pre-COVID study found that more than one-half of minority-owned businesses have less than two weeks of operating cash reserves.

That is not the case for Verdugo’s company, which generated $2.5 million in revenue in 2020 — modest growth over the past few years.

But she still relied on $100,000 from the federal government’s Paycheck Protection Program (PPP) to keep her 30 employees, all minorities, working.

That’s an infusion of capital that many minority-owned businesses did not receive. According to Small Business Administration figures, of the 4.9 million loans provided under the CARES Act, only 2% went to Black-owned businesses.

That has put extra pressure on federal and state governments to throw MBEs a lifeline.

Recent changes to the PPP program, which had its deadline extended to May 31, did aim to expand access for minority-owned businesses.

Meanwhile, Thames said the Lamont administration has tried to provide some help, including in October when it committed $50 million from the state’s CARES Act relief funds for grants to small employers hit hardest by the pandemic; 50% of the money was designated for businesses in distressed municipalities.

That is a temporary solution to a longer-term challenge. As the state — and its minority businesses — look to rebuild the economy after the pandemic, providing access to capital and creating more access to state-certified projects for minority business enterprises will be an important consideration.

While Verdugo’s company is fortunate to have strong working relationships with several construction companies in need of demolition services, and her state-certified status has created numerous business opportunities, Verdugo said her push for greater equity under the state’s set-aside program is about more than her or her company; it’s about the larger minority community.