July 20th, 2022

Will Mass. spend ARPA funds equitably?

Report says regulations stand in the way

Anna Lamb

With new funds flowing into the state from the federal American Rescue Plan Act (ARPA) and the bipartisan infrastructure bill, experts warn that Massachusetts is ill-prepared to spend that money equitably without major changes to state law.

In a study released by MassINC and Lawyers for Civil Rights, data shows nearly $17 billion set to come into the state over the next five years from the federal government — a large portion of which will be used for city and town infrastructure projects. However, researchers show Massachusetts municipalities facing constraints in their ability spend that money in ways that benefit diverse communities because of limiting state contracting law.

Currently, cities in Massachusetts are prohibited from using inclusive contracting practices on the majority of public works infrastructure projects, including roads, sewers and sidewalks — many of which will be paid for with the federal dollars. Inclusive practices typically include, for example, breaking up large contracts to help smaller firms compete.

The new 28-page study, supported by Eastern Bank Foundation, shows that the current contracting practices have produced a wide gap in earnings across the state. On average, researchers found that people of color who own a construction business earn $62,000 annually, compared to $103,000 for white owners of construction firms. The 65% gap is compared to a 52% disparity across all other sectors.

“Previous MassINC research shows how changing demographics in regions throughout the state make it essential to position entrepreneurs of color to successfully grow their businesses,” says Ben Forman, executive director of MassINC’s Gateway Cities Innovation Institute. “For many small businesses, public contracts are an important source of revenue.”

The report calls on local legislatures to take proactive measures to ensure that municipal governments are better-positioned to fuel equitable growth with the unprecedented infusion of federal investment. The researchers look to proven strategies for increasing equity including a “sheltered market” approach in which cities set aside a small number of contracts just for competition among underrepresented businesses.

The report contains several policy recommendations, including expanding existing sheltered market programs to include public building and public works construction, and ensuring the programs prioritize underutilized small and local businesses.

Iván Espinoza-Madrigal, executive director of Lawyers for Civil Rights, points to reforming the law, among others, as a key to helping to prepare for the new influx of funds.

“Right now, Massachusetts communities are struggling to implement inclusive contracting best practices,” he said. “This new research suggests outmoded state laws are not the only barrier municipalities face, but they are arguably the most formidable.”

Additionally, the MassINC report recommends municipalities support an amendment to state law that currently prohibits “bid splitting,” instead allowing an unbundling of large contracts to meet inclusive procurement goals. Under state procurement laws, the splitting of one contract into two or more contracts for the purpose of evading the advertising requirements or other requirements of the construction bid laws is illegal. According to the Massachusetts Attorney General’s office, bid-splitting often occurs when an awarding authority wants to avoid a dollar amount threshold that implicates different bidding requirements, such as the threshold for the Division Capital Management and Maintenance (DCAMM) certification.

Currently, only 27 individual businesses with Minority Business Enterprise (MBE) certifications hold DCAMM certification — less than 1% of the approximately 3,000 incorporated minority-owned construction businesses in Massachusetts. That’s compared to 3.8 % of white-owned construction businesses that have DCAMM certification.

The study shows that this certification gap leads to procurement gaps, as minority-owned businesses will not seek contracts, or the certifications required to access them.

To track the usefulness of such methods, researchers propose the state creates a grant program to help municipalities collect and publicly report minority business participation in procurement.

“There is a historical legacy of racial injustice when it comes to federal, state and municipal infrastructure investment,” says Espinoza-Madrigal. “If we truly want things to be different this time, the Legislature must empower municipalities to implement effective inclusive contracting policies. This is critical to close the racial wealth gap.”