SBA's program for 'disadvantaged' has little effect on inner-city poverty

April 03, 1995|By Los Angeles Times

WASHINGTON -- Kavelle Bajaj, not surprisingly, speaks well of the federal government's oldest affirmative action program, which steers contracts worth $4.3 billion a year to "small disadvantaged minority enterprises."

A native of New Delhi, she came to this country in 1974 to marry a computer engineer who was rising in the ranks of Ross Perot's Electronic Data Systems Corp.

Not content with being a housewife, she started a computer services business, which gained certification in 1986 as an advantaged minority enterprise by the Small Business Administration. That allowed her to win no-competition government contracts of up to $5 million.

With her husband and other top-flight computer engineers working as her employees, her business boomed. Last year, her Bethesda-based company, I-Net, captured $235 million in contracts for computer networking in a half-dozen federal agencies.

These days, the phenomenal success of "disadvantaged" entrepreneurs such as Ms. Bajaj -- rather than testifying to the effectiveness of affirmative action -- is fueling demands that the minority preference programs be reformed or repealed.

Begun in 1969 under President Richard M. Nixon with the intent of inspiring "black capitalism" in the nation's depressed inner cities, the program's big winners instead have been high-tech companies that occupy the glass office towers along the Capital Beltway, according to government auditors.

Enriched by no-competition contracts, several dozen capable and highly successful companies have made millionaires of their owners, the auditors say. But the minority enterprise program has done almost nothing to spur business development in the predominantly poor and black neighborhoods of the nation's largest cities, they add.

In other years, the controversy over the SBA's "8a" program would have been confined to the relatively small community of contractors who closely track federal procurement. But this year, it has come into the public spotlight as official Washington begins to rethink the many programs that fall under the rubric of "affirmative action."

Last month, Senate Majority Leader Bob Dole, once a supporter, took to the Senate floor to proclaim that the minority enterprise program "should be repealed outright."

"There are other, more equitable ways to expand opportunity, without resorting to policies that grant preferences to individuals simply because they happen to be members of certain groups," the Kansas Republican said.

At Mr. Dole's urging, the Senate Small Business Committee will hold hearings on the program tomorrow.

The Supreme Court also is reviewing the constitutionality of the program, which gives funding preferences based on race or ethnicity. And President Clinton has ordered a White House review.

The SBA's program is the oldest and largest effort to steer business to minority companies. At Mr. Dole's request, the Congressional Research Service found 168 examples of "racial and ethnic preferences" written into federal laws and regulations, but only two of the efforts have a broad impact. The employment rules governing federal contractors have forced thousands of private businesses to adopt "goals and timetables" for hiring minorities. The other is the SBA minority enterprise program.

Although it has operated in virtual obscurity, the SBA program has been criticized over many years by the General Accounting Office and the SBA inspector general.

The main criticisms include:

* A large percentage of contracts go to businesses circling the Washington area even though the program was intended to develop small minority companies in major U.S. cities. In an audit of 1990 awards, the GAO found that more than one-third of the $3.8 billion in contracts went to "8a" companies in Maryland, Virginia and the District of Columbia. Meanwhile, minority businesses in New York, Pennsylvania and Michigan received less than 1 percent of the total. Thanks to the defense industry, California-based companies placed first that year, but the state's $775-million total stood well behind the amount awarded to Washington-area companies.

* Too much money is awarded without competition. The program says it seeks to develop minority businesses and foster "competitive viability," but 81.5 percent of the money awarded last year went in no-competition contracts, the GAO says. The rest was awarded through competition limited to minority companies.

* Too many wealthy people are labeled disadvantaged. Last year, SBA auditors checked 50 of the minority companies and found 35 people with "a net worth in excess of $1 million."

* Too much money is concentrated among too few companies. Last month, GAO auditors told a House committee that 50 of the 5,293 companies that are certified as minority enterprises received more than one-fourth of the contract dollars awarded last year. At the same time, 56 percent of the businesses did not win any contracts.

* Minority workers do not always benefit. The SBA regulations do not require that a minority-owned business employ minority workers. "I have seen 8a companies with 400 people on the payroll, and they may have one black or Hispanic employee," said Terry Miller, president of a government consulting company in Great Falls, Va.

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