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A Path to Fair and Equitable Infrastructure Spending

Small businesses and those owned by women and people of color don’t receive a fair share of government contracting. With infrastructure money flowing, now is the time for public agencies to take a pledge to improve procurement practices.

Cargo ships stacked with shipping containers docked at the Port of Long Beach.
The Port of Long Beach has pledged to increase the size and scope of contracting opportunities won by historically underutilized businesses.
(Ringo Chiu/Shutterstock)
Billions of federal infrastructure dollars are now flowing to states and municipalities. Some states, including California and New York, have passed record-level budgets that add even more infrastructure funds, making for a once-in-a-generation opportunity to leverage public funding to rebuild our country.

But the key question is: Who? Who gets the money, does the work and benefits?

When it comes to public spending, the answer to those questions has too often been a narrow portion of our population. This uneven investment has contributed to widening racial wealth gaps and inequality. We can do things differently this time.

Beyond building roads, bridges, airports, water projects, broadband and other infrastructure, we have a moment, right now, to build wealth and economic resilience for those long shut out of opportunities to achieve the American Dream. The first step is to diversify which businesses win these massive infrastructure contracts, and making that happen must involve policymakers and agencies at all levels of government.

The federal government is the largest purchaser of goods and services in the world. But according to the Small Business Administration, small businesses and those owned by women and people of color receive dramatically less in federal spending relative to their share of U.S. business ownership. The U.S. government spent about $665 billion on procurement contracts in 2020, with only 9 percent going to minority-owned small businesses.

New research from the Nowak Metro Finance Lab at Drexel University sheds light on some of the barriers that minority-owned businesses face in accessing federal contracts. For one, these businesses are often relegated as subcontractors because they are too small to compete with larger firms. Importantly, there is also no unified approach to increasing supplier diversity, leaving a lot of missed opportunities.

The Biden administration has set goals to increase procurement spending to “historically underutilized businesses.” Success will require a concerted effort by public-, private- and philanthropic-sector leaders to ensure that minority-owned businesses benefit from the enormous opportunity to transform our economy.

That’s the reasoning behind the Equity in Infrastructure Project (EIP), a new national effort to measurably increase the size and scope of contracting opportunities won by historically underutilized businesses. Five public agencies were the first to sign the pledge: the Port of Long Beach, the Metropolitan Water District of Southern California, Denver International Airport, the Chicago Transit Authority and the Southeastern Pennsylvania Transit Authority.

These signers pledged to increase the number, size and percentage of historically underutilized businesses that become prime contractors, participate in joint ventures or are equity participants by December 2025 (before the last of the Infrastructure Investment and Jobs Act funding is disbursed). While EIP is acting independently, this effort seeks to advance the spirit of President Biden’s Justice40 Initiative and his June 2021 executive order pledging to increase, by 2026, the share of federal contracts going to small and disadvantaged businesses.

Now, as the funding begins to flow, we call on additional public agencies and state governments, which also have tremendous purchasing power, to sign the EIP pledge and improve their procurement practices to take advantage of this enormous opportunity.

Local, state and federal policymakers can also create a more level playing field for minority-owned businesses by improving their access to affordable capital through support of community development financial institutions and other alternative lenders, as well as requiring agencies to better track and transparently share demographic data on procurement spending.

Philanthropic leaders can help historically underutilized businesses overcome persistent barriers by funding technical support and business coaching, seeding loan funds and investing in measurement and accountability. We can help these businesses create good-quality jobs, with living wages and career development opportunities. We also need more investors to infuse capital into these businesses so they can successfully fulfill the contracts they win.

All of these steps would benefit not only minority-owned businesses but also the economy as a whole. Analysts forecast that achieving parity between the revenue of existing Black-owned businesses and white-owned businesses would add about $190 billion to the national GDP. The Brookings Institution found that a supportive ecosystem for Black-owned businesses — able to thrive relative to population size and in line with the average success of white-owned businesses — could create more than 19 million jobs and increase the businesses’ revenue by $5.9 trillion.

In a time of growing inequality, equitably deploying infrastructure funds can create jobs, higher incomes and generational wealth in communities of color that have been left out historically. What we build and rebuild matters, but the who and how of this moment is what will truly define the future.

Phil Washington is co-founder of the Equity in Infrastructure Project, CEO of Denver International Airport and a former CEO of L.A. Metro. He was recently nominated by President Biden to be the next administrator of the Federal Aviation Administration. Don Howard is president and CEO of The James Irvine Foundation, which seeks to build a California where all low-income workers have the power to advance economically.

Governing’s opinion columns reflect the views of their authors and not necessarily those of Governing’s editors or management.
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