Ehrlich reworks minority business program

18-member panel recommends several changes, including a mentor-protege program for small firms, revamping of procurement

February 27, 2004|By Todd Beamon | Todd Beamon,Baltimoresun.com Staff

ANNAPOLIS -- Gov. Robert L. Ehrlich Jr. announced an overhaul of Maryland's minority business practices, including the signing of three executive orders that would create programs to foster relationships with businesses and redesign procurement systems.

"We knew that the present system was implemented in good faith," Ehrlich said at a news conference at the State House in Annapolis. "But we know that that system has deep flaws."

The 50 recommendations presented in a report from the 18-member panel -- the Governor's Commission on Minority Business Enterprise Reform -- seek to increase contracting opportunities for minority businesses while centralizing access to information and improving opportunities to receive capital.

The major portion of this program includes legislation that would dedicate 10 percent of the state's contracts to small businesses and requiring contractors to name their MBE subcontractors in the bidding process.

Steele said that this measure, which would require Maryland General Assembly action, seeks to curb "bundling" in which primary contractors consolidate several services with one subcontractor.

"This will allow all of the small and minority businesses to compete with each other for their own contracts without having to compete with a large primary contractor," Steele said.

In addition, the Maryland Department of Housing and Community Development is sponsoring legislation recommended by the panel in the Maryland General Assembly that will for the first time give the DHCD permission to sell taxable bonds to finance small business loans.

"This program seeks to empower and give minority-owned businesses access to capital, access to contracts, and access to opportunity," said Lt. Gov. Michael S. Steele. "With this program, we believe minority business enterprises will be able to reach their goals one contract at a time."

The executive orders Ehrlich signed today established a mentor-protege program to strengthen relationships between smaller and larger businesses, created a task force to provide recommendations on improving the procurement system and created a standing oversight council to continue the work of the commission.

In addition, Ehrlich elevated Sharon R. Pinder, the state's minority affairs director and the commission's executive director, to the position of special secretary of the governor's office of minority affairs.

Other reforms put forth by the committee included establishing a Web site to serve as a one-stop shop for all state services, creating a minority business enterprise handbook, requiring an MBE procurement plan and establishing performance measures and other incentives to businesses.

Ehrlich formed the panel last June to conduct a comprehensive review of the state's minority business enterprise efforts.

The commission conducted five public hearings around the state to seek input from local entrepreneurs.

The Ehrlich announcement came a day after Democratic lawmakers presented a legislative package to improve the MBE program. Lawmakers said their effort was not timed to the governor's announcement.

In recent years, Maryland's Minority Business Enterprise Program, overseen by the minority affairs office, has come under fire for its bureaucratic structure and byzantine guidelines that do little to enhance minority business growth. One such rule that has been heavily criticized bars entrepreneurs with a personal net worth of $750,000 from participating in the program.

Ehrlich also criticized the program during his gubernatorial campaign.

Minority businesses often find it difficult to secure financing -- and when they do, it's usually through traditional bank loans at higher interest rates. Such companies also face credit issues and difficulties with finding, training and retaining employees.

In addition, minority firms have difficulties in forging equity partnerships with larger companies. In such arrangements, investors put up money in exchange for an ownership stake in the company.

Of the $4 billion in contracts awarded by the state in fiscal year 2002, only about $700 million -- or about 16 percent -- went to the state's minority businesses. And only 1 percent went to companies owned by African-Americans. (The majority went to businesses owned by white females.)

The state's target is 25 percent. That goal would not be changed with today's announcement, Steele said. Businesses that qualify for MBE designation must be 51 percent owned, controlled or managed by a person who is "disadvantaged socially or economically," under state guidelines.

Ehrlich and Steele announced the program during a crowded, upbeat news conference surrounded by cabinet appointees, MBE commission members and business leaders from around the state.

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