March 17, 2008 | Volume 5, Issue 1
A New Model
Minority Business Development in Pittsburgh
The new dimension of performance for the Greater Pittsburgh area is minority business development. For many years, Western Pennsylvania’s reputation has been clouded by its inability to broaden economic plans and strategies with the influence of qualified minorities. In an effort to fully examine this argument, I have drawn perspectives from Pittsburgh employees, financial institutions, the social atmosphere, and the understanding I bring as a minority business owner. I find that community-based development groups’ most pressing issue is cash flow, and that streamlining the flow of money into MWBE businesses through the expansion of minority financial institutions is the key to success.
At the turn of the twenty-first century, the economic landscape of the Western Pennsylvanian region has peaked and valleyed, forcing a new economic strategy as we enter the new millennium. With economic change, social reform must follow. Western Pennsylvania’s economic base has transitioned from industrial manufacturing to industries like healthcare, with an emphasis on innovation and entrepreneurship. However, multiple minds suggest that the new dimension of performance for the Greater Pittsburgh area is minority business development. For many years, Western Pennsylvania’s reputation has been clouded—not by the leftover smog from its industrial era—but by its inability to broaden economic plans and strategies with the influence of qualified minorities. In an effort to fully examine this argument, I have drawn perspectives from Pittsburgh employees, financial institutions, the social atmosphere, and the understanding I bring as a minority business owner.
The problem of minority influence is equally felt among internal and external stakeholders and within public and private organizations. In an interview, Chuck Powell, the Director of Diversity Affairs for the Urban Redevelopment Authority, emphasized the difficulty in getting minorities and women involved in publicly funded projects and ensuring that minority and women business enterprise (MWBE) plans are adequate. The magnitude of the MWBE participation issue is represented by the number of minorities that apply for the city’s publicly funded prime contracts. Research conducted by Dr. Ralph Bangs, Associate Director of the Center on Race and Social Problems for the University of Pittsburgh, shows significant disparity between cities such as Atlanta and Pittsburgh in MWBE participation. In Atlanta, African-American firms submit 29% of the bids for the city’s publicly funded contracts and there is a 28.4% rate of business ownership and job creation in poor and minority communities. In Pittsburgh, minority firms submit only 3% of the bids for publicly funded contracts and there is only a 15.5% rate of minority business ownership.1 Pittsburgh’s general economic lag behind other major cities has been attributed to this phenomenon; when MWBE businesses are not supported, jobs are lost and the economy weakens. One source of the problem is tied to the social atmosphere in Pittsburgh.
A Circular Problem
The frigid relationship between minority business owners and the public funding process dates back to the days of booming factories and seems as impenetrable as the steel they used to produce. Dr. Bangs identified a belief commonly shared by minorities that the local government is biased against them. Native Pittsburghers of the Baby Boomer generation expressed to Dr. Bangs grievances with the Pittsburgh Civic Arena (now the Mellon Arena), that displaced several minority businesses in 1961 without ensuring that the neighborhoods the arena engulfed were adequately compensated. The resentment has continued to simmer recently when Steelers owner Dan Rooney received approximately $88.4 million from the Commonwealth, $2 million from the water and sewer authorities, and an estimated $4 million from federal infrastructure public funding sources for a new stadium, but Majestic Casino owner Don Barden received no public funding assistance.2 Both men operated for-profit organizations, both men were creating jobs, and both men are credible and respectable individuals. From the outside looking in, many people saw race and influence in Pittsburgh politics as the only differences between these individuals. In all fairness, a stadium has fewer negative externalities than a casino, and professional football is a major part of the city of Pittsburgh. However, the consequence of not having landmark minority business success stories to refute these sentiments creates a circular problem. Pittsburgh has fewer minorities to support, because Pittsburgh minorities feel unsupported.
Public Funds
To understand the significance of the interview with Chuck Powell, research of Dr. Bangs, and the implications of Don Barden and Dan Rooney, we must first have knowledge of the public funding process. Public funds are created by tax dollars. The amount of tax money used for public funds is determined by the federal and state government, which designate the amount of funds to be used for social and economic development purposes. State and federal governments use local governments for the disbursement of funds. Local government consists of parking authorities, port authorities, housing authorities, economic development authorities, the Mayor’s offices, offices of finance, city planning departments, and other local agencies. These fixtures in local government are responsible for allocating public funds to the appropriate projects. Projects with a value of greater than $250,000 have minority and women business requirements associated with them.3 The MWBE goal for the Pittsburgh area is for 18% of funds to be channeled through minority businesses and 7% through women-owned businesses (Figure 1).4
Figure 1:
The Reality of Public Funds
Public funds are the mail-in rebate of the financing world, the recipient is pleased to receive the money but exacerbated by the processing time. This became clear to me as I worked closely with the Bloomfield-Garfield and East Liberty Development groups in Pittsburgh. Community-based development groups’ most pressing issue is cash flow. A large portion of the money community development groups receive is derived from public funds. Public funds such as community development block grants (CDBG) create great opportunities for Western Pennsylvania, but require time to be allocated to the recipient. The time involved is a burden for small developers and contracting businesses. The inability to receive a paycheck in two, four, or even six weeks deteriorates the financial stability of small businesses. Regardless of when the public funds are received, payrolls, creditors, and suppliers must be paid. In many cases, these small businesses incur a 1% financing charge from creditors after being 30 days delinquent on payments, further compounding the funding delay problem. Rick Swartz, President of the Bloomfield-Garfield Development group, stated that “as a son of a contractor I understand what it is like two have to endure the uncertainty and stress of trying to provide for a family without knowing when the next paycheck will arrive. The hardest phone call I have to make is the one to tell a contract that his men won’t be getting paid this week because the public funds have not come through yet.” Under these circumstances keeping a construction crew motivated, overhead cost down, and a project running smoothly is nearly impossible for a small business.
A New Model
A new business model for the public funding process can improve the current situation and lead to mutually beneficial business relationships. Streamlining the flow of money into MWBE businesses through the expansion of minority financial institutions is the key to success. The social, financial, and participation issues may be alleviated if minorities do not have to leave their communities in order to receive minority business assistance. The presence of minority financial institutions in Allegheny County is almost non-existent. There is one minority bank, Dwelling House Savings and Loans, and one financial advisory firm with a community focus, Talented Tenths Inc. These firms can address the gap between work completion and payment received for services rendered that hinders the success of public funds. Minority-owned banks and investment advisory firms are institutions that would not be adversely affected by the time it takes to receive funds, as they have the resources to cover payrolls and operational expenses for months at a time. Figure 2 shows how the current process takes place and Figure 3 is the new model for minority businesses.
Figure 2: Current Model
Figure 3: A New Approach
This concept is new to the public funds arena, and it creates a win-win situation for all stakeholders. The MWBE or small business owners receive consistent income, financial institutions have more capital to issue more loans, and minority business requirements on public funds are satisfied for contract recipients. In order to test the feasibility of this model Dwelling House Savings and Loans was contacted. The Dwelling House ”... exists to improve the home ownership and home rehabilitation opportunities, primarily in urban areas of Pittsburgh.” The bank gives “marginal loans” to individuals that would be turned of away from large scale banks and emphasizes educating and counseling people for financial success.5 The Dwelling House is the only minority-owned bank in Pittsburgh and fits perfectly into the economic redevelopment needs of Pittsburgh. After explaining the concept to Robert R. Lavelle, the Founder of Dwelling House Savings and Loans, even more headway was gained. Lavelle explained that such a program could work by advancing the banks funds to the contract holder and then drawing down funds from the government. Mr. Lavelle went on to state that the program could be managed just like a loan to build a house. The interest earned from the new source of revenue could pay for the administration of the program leaving all parties better off. The emphasis of this research has been on minority-owned businesses, however; this model can be expanded to include all small businesses that suffer from cash flow problems.
The new dimension for performance in Pittsburgh needs to be based in the communities struggling the most. It is counterintuitive to believe that change can be made without changing the way minority businesses contribute in the development of this area. Only a concerted effort by minorities and local government can disperse the dreary economic overcast of Pittsburgh to reveal the promise of a new horizon.
1 Bangs, R., Murrell, A., and Constance-Huggins, M. “Opportunities for minority contracting in Pittsburgh.” New Pittsburgh Courier, February 16–20, 2005.
2 Pittsburgh Steelers Stadium Development Project: Memorandum of Intent. Accessed March 12, 2008 at http://www.voicepac.org/res_7A.htm
3 Urban Redevelopment Authority of Pittsburgh. MWBE Contractors. Retrieved December 14, 2007, from http://www.ura.org/pdfs/MWBE_overview.pdf
4 Urban Redevelopment Authority of Pittsburgh. Minority and Women-Owned Business Enterprise (M/WBE). Retrieved December 14, 2007, from: http://www.ura.org/MWBE_Policy.html
5 Our Company. Retrieved February 15, 2008, from Dwelling House Web site: www.dwellinghouse.com/our_company