In a stinging rebuff to the federal government, Gov. Pete Wilson has cut in half the state's goal for hiring minority and women contractors on transportation projects despite strong objections from U.S. transportation officials.
Wilson's decision to unilaterally implement a 10% goal--down from the state's historical 20% target--follows months of wrangling with federal officials who have refused to approve the state's request.
"Your request that California maintain a 20% goal appears to disregard the Supreme Court's guidance on these matters," Caltrans Director James W. van Loben Sels wrote Washington this month. "As a result, California will not collaborate in a 'stay the course' strategy that ignores recent Supreme Court guidance on these matters. . . .
"We will continue to implement our program based on a 10% annual goal."
The federal government, which provides most of the funds for transportation projects, refused for months to approve the new goal but has now backed away from taking any action to stop it. Over the years, the goals have helped direct hundreds of millions of dollars in transportation business to minority- and woman-owned enterprises in California.
"We are sorry to see that California is the only state in the nation that chose to significantly reduce its . . . goals," said Andrew M. Pavin, communications director for the Federal Highway Administration. "We feel that action will hurt many qualified small businesses in California."
For Wilson, the successful implementation of the lower contracting goal represents a significant victory. The governor was able to take some minor actions himself--such as the abolition of affirmative action advisory committees--but the lowering of goals was considered a major challenge because it required federal approval.
With this latest success, Wilson can strive to maintain the national leadership role on the affirmative action issue that he sought to carve out for himself during his abortive bid for the Republican presidential nomination.
Since setting the 20% goal in 1988, California has had the highest contracting goal in the nation and in most years it has not only achieved that goal but exceeded it. In the 1993-94 fiscal year, for example, 27.7%--or $266 million out of the $961 million spent on transportation projects--went to minority and women contractors.
The latest change was set in motion in June, when Wilson ordered Caltrans to negotiate a 10% goal as part of his effort to dismantle affirmative action in California government. "We must make hard work, self-reliance, individual initiative and merit--not group membership--the basis for success in America," he said at the time.
But the federal government balked. "We . . . encourage California to operate at its prior goal and to make every effort to achieve [these] goals consistent with past achievements," said the head of the Federal Highway Administration and the head of the Federal Transit Administration in a sternly worded joint letter. Without more justification for the change, they added, "we cannot give final approval of this goal."
At stake in the meantime for minority- and woman-owned businesses is hundreds of millions of dollars in transportation contracts for projects ranging from the replacement of highway bridges to the widening of roadways.
In the Los Angeles area alone, those businesses received nearly $40 million in contracts, or 20% of the $195 million spent last year on transportation projects.
While minority- and woman-owned businesses are still expected to get some share of these contracts, many fear that the lowering of the goal will cause them in the coming year to get far less in government transportation dollars than they have ever gotten in previous years. Some predict that the loss will be as much as $100 million.
Organizations representing these businesses say their members are already feeling the impact of Wilson's policy change, with fewer government transportation contracts and less interest by prime construction firms in subcontracting with minority- and woman-owned enterprises.
"It's hurting us considerably," said Rodrigo Garcia, president of a Los Angeles civil engineering and construction management firm and a representative of the Hispanic Contractors Assn.
Harry C. Alford, chairman of the National Black Chamber of Commerce, worried that California's success at cutting the goals will have far-reaching effects on other states. "We've got to nip this in California, otherwise the dominoes will fall," he said.
State transportation officials acknowledge that the new policy has already caused them to establish goals on individual projects that are about a third lower than they would have been a year ago.
For example, projects that last year might have had a 30% goal now would have only a 20% goal. (Although the state is required to reach a single overall goal, the goals on individual contracts vary according to the availability of minority- and woman-owned businesses in an area.)
Federal officials called California's actions disappointing but said they are not in a position to take any action until they have finished assessing the impact of a Supreme Court ruling known as the Adarand decision.
In the June decision, the court attacked the use of race as the basis for any government program and held that such programs can be permitted only to correct specific, provable cases of discrimination.
Although the court decision did not strike down any specific law or regulation, it has prompted a government-wide review by the Clinton administration of all affirmative action programs.
"Our position is that while we have review of affirmative action programs underway, we asked all of our state partners to stay the course," said Pavin, of the Federal Highway Administration.
One other state, Virginia, has reduced its goals, to 10% from 12%, but with federal approval.
Jeffrey M. Reid, Wilson's undersecretary of business, transportation and housing, said the Wilson administration believed it had the law on its side when it decided to implement a new goal without federal approval. He said federal law clearly only requires a 10% goal, and California's recent goal of 20% has not only exceeded that but has been the highest in the nation.
Federal authorities argued, however, that the 20% goal was one that California had originally requested, even during the early years of the Wilson administration. They said that once a state has proved it can reach a higher goal, it should not reduce that goal without compelling evidence that it is no longer feasible.
Reid said the state believes it has presented compelling evidence, including the argument that the lower goal means "we are now better able to accept the lowest bid, and not the bid that simply meets an artificial set-aside."
He said he would have preferred to reduce the goal to zero, but anything less than 10% would have given the Clinton administration more latitude under federal regulations to take action against the state.
Reid said the reduction in the goal may not necessarily mean that fewer minority- and woman-owned firms will get state transportation business. He said those firms would have the same chance of getting contracts as any other businesses, as long as they present competitive bids.
But organizations representing minority businesses strongly disagreed, saying that without the goals, contractors naturally choose for their subcontracting work the white-owned firms they are accustomed to doing business with.
Paul Guerrero, president of United Minority Business Entrepreneurs, a statewide association of minority- and woman-owned enterprises, said experience has shown that whenever governments stop using goals, the number of contracts going to minorities and women drops precipitously.
"I see this as the beginning of a total withdrawal of minority and women participation in transportation contracts in California," Guerrero said.
William Yang, head of a mechanical and electrical engineering firm in Burbank and a board member of the Asian Business Assn., said any goal set by the state in effect becomes a ceiling. If contractors are required to give 10% of their business to minorities and women, he said, they will only give 10% even if a larger number offer competitive bids.
Alford of the National Black Chamber of Commerce said that even with higher goals, African American businesses get only a tiny percentage of state transportation contracting dollars.
"I see blacks getting virtually nothing now," he said. "I do believe that women, Asians and Hispanics are going to get hit quite substantially too. I think they are going to see a significant door slam."
He said his organization is contemplating filing a lawsuit challenging California's implementation of the federal affirmative action program. A federal transportation official confirmed that in response to a complaint from the National Black Chamber of Commerce and others, federal authorities are conducting a preliminary inquiry into allegations that the state may have violated regulations in its operation of the program.
Among other things, it is looking into complaints that in 1993, Caltrans attempted to clean up a backlog in its program for certifying businesses as minority- and woman-owned by summarily rejecting, without investigation, hundreds of pending applications.
"I'm just amazed at Gov. Wilson. I thought he might just let this thing die down after he gave up his bid for presidency," said Guerrero. "But sometimes people who do what he's doing do more for the minority community than people like Jesse Jackson do. These actions energize the minority community and bring it together."