Interim Joint Committee on State Government


Minutes of the<MeetNo1> 2nd Meeting

of the 2004 Interim


<MeetMDY1> August 25, 2004


The<MeetNo2> second meeting of the Interim Joint Committee on State Government was held on<Day> Wednesday,<MeetMDY2> August 25, 2004, at<MeetTime> 1:30 PM, in<Room> Room 101 of the Kentucky International Convention Center, Louisville, KY. Senator Alice Kerr, Acting Co-Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Alice Kerr, Acting Co-Chair; Representative Charles Geveden, Co-Chair; Senators Charlie Borders, Tom Buford, Julie Denton, Ernie Harris, David K. Karem, and Elizabeth Tori; Representatives John Adams, Adrian Arnold, Eddie Ballard, Joe Barrows, Carolyn Belcher, Kevin Bratcher, Dwight Butler, Larry Clark, Perry Clark, Tim Couch, Derrick Graham, Mike Harmon, Charlie Hoffman, Jimmie Lee, Paul Marcotte, Stephen Nunn, Tanya Pullin, Jon David Reinhardt, Tom Riner, and John Will Stacy.


Guests:  Derwin Webb, Kentuckiana Minority Business Council; Mike Burnside, Jim Abbott, and Byron Costner – Finance and Administration Cabinet; Tierra Kavanaugh-Turner, Governor's Office for Minority Empowerment; Beverly Watts, Commission on Human Rights; former state Senator Georgia Powers; and Rev. Louis Coleman, Justice Resource Center.


LRC Staff:  Joyce Crofts, Alisha Miller, Mark Roberts, Kathryn Walton, Stewart Willis, and Peggy Sciantarelli.


The minutes of the June 23 meeting were approved without objection, upon motion by Representative Belcher. Senator Kerr acknowledged former state senator Georgia Powers in the audience.


Representative Geveden assumed the chair. Women and minority business participation in state contracts was the primary topic on the agenda. The first speaker was Derwin Webb, President and CEO of the Kentuckiana Minority Business Council (KMBC). In summary, Mr. Webb said that in 1997 there were 12,664 minority-owned firms in the state, with about 24,000 employees. Minority-owned firms accounted for about 4.5 percent of firms in Kentucky's economy and a little more than one percent of sales and receipts. In the United States 14.6 percent of firms were minority-owned, and 3.2 percent of sales and receipts were made through minority-owned businesses. In both Kentucky and the USA the number of minority-owned businesses is low relative to the number of minorities in the population. According to the 2000 Census, approximately 10 percent of Kentucky's population is non-White, and 1.5 percent are Hispanic. Nationwide the population is about 25 percent nonwhite and 12.5 percent Hispanic. Mr. Webb concluded by saying that there are enough minority business enterprises to allow companies throughout the Commonwealth the opportunity to do business with the state. He said the only question is whether they will be given the opportunity to compete on that level.


Representative Geveden asked what can be done to help minorities compete. Mr. Webb said many things could be done, either by legislation or executive order of the Governor. He said state spending with people of color is less than one percent and that this is not acceptable to the minority community. He emphasized that minorities are not asking for handouts but only the opportunity to compete.


Representative Larry Clark asked Mr. Webb about the role of KMBC. Mr. Webb said the Council is a nonprofit agency headquartered in Louisville, with an office also in Lexington. He said the Council tries to promote minority economic development in southern Indiana, the entire Commonwealth of Kentucky, and portions of West Virginia. It serves as a conduit between the minority business community and the corporate community. At the state level, however, they are finding it difficult to "even get our foot in the door" in order to promote contracting opportunities at that level.


Senator Kerr asked Mr. Webb what he sees as the biggest obstacles to minority participation. Mr. Webb said the two biggest problems that minority and women business enterprises talk about are lack of information and lack of capital. He said something needs to be done to provide information and financing opportunities to those who want to compete for contracts.


Representative Graham asked for examples of what other states have done to help minorities. Mr. Webb said the state of Connecticut has a small/minority business set-aside program and that New Jersey's governor recently issued an executive order to provide more opportunities to small/minority business enterprise. He noted that there have been complaints and concerns about racial set-aside programs. He referred to two notable U. S. Supreme Court cases—City of Richmond v. J. A. Croson Co. and Adarand Constructors, Inc., v. Federico Pena, Secretary of Transportation. Mr. Webb said his problem with the state now is that nothing has been done. He said the minority business community is under the impression that nothing is being done to provide them opportunities to bid on state contracts.


Representative Geveden asked Mr. Webb whether he could furnish committee staff with written suggestions for possible legislation or an executive order. Mr. Webb said he would do so. Representative Geveden suggested that Mr. Webb address the Committee again prior to or early in the 2005 session of the General Assembly to discuss his ideas.


Representative Geveden inquired about the Croson case. Mr. Webb said it was the first case that really challenged affirmative action. He went on to say that race can be used as a factor in deciding contracting opportunities and that there are ways to include minority businesses if the state really wants to—that courts have decided that. The only question is what should be done at this point. Mr. Webb said he does not know of anything currently "out there" to stimulate opportunities for minority business enterprise.


Senator Karem said he thinks there is an attitude problem. He went on to say that there will always be an issue whether there can or cannot be set-asides but that there are ways to solve that problem. Any administration—Republican or Democrat, rural or urban—can take an attitude of inclusiveness and that is what needs to occur. If people in authority send the message that they want inclusiveness with regard to minority, women and disadvantaged business enterprises, they can make headway. There are many examples in Kentucky where it does work because people have an attitude.


Representative Larry Clark said that the Jefferson County delegation would be willing to work with the Council in developing any legislative proposals they would like to bring.


Senator Karem suggested that the State Government Committee could send a message to the administration and those in power that working to enhance minority business participation should begin in a proactive way and that the Committee wants to see results quickly. Mr. Webb said he thinks it is time for the state to do something that is right—something that will benefit and create opportunities for people of color.


The next speakers were from the Finance and Administration Cabinet (FAC): Mike Burnside, Executive Director, Office of Material and Procurement Services; Jim Abbott, Commissioner for Facilities and Support Services; and Byron Costner, Executive Director of the Office of EEO and Contract Compliance. They provided the Committee with two one-page handouts: "MBE/WBE (Minority Business Enterprise/Women Business Enterprise) Contracting Issues," and "MBE/DBE Participation."


Mr. Burnside said his office is the central procurement office for state government. He explained that the Cabinet has an "eProcurement" web site, and every contract posted is put out for bid on that site. Finance and Administration Policy and Procedure (FAP) #111-55-00 requires all agencies to consider MBE/WBE vendors when conducting purchases within their small purchase authority. The Office also works with the Small Business Administration and the Economic Development Cabinet's Kentucky Procurement Assistance Program to conduct education programs and teach vendors how to bid on state contracts.


Mr. Burnside gave the following statistical summary. The Commonwealth's vendor database currently has records for 395,151 active vendors. Of these, 4,379 vendors claim MBE/WBE status, which indicates that many of the 12,000+ minority-owned Kentucky firms on record with KMBC either do not claim MBE/WBE status or perhaps are not registered in the state system. Exclusive of memoranda of agreement, over 18,000 state contracts were issued last year; of those, the total issued to MBE/WBE vendors was about 1.8 percent. Slightly over one percent of vendors in the database are registered as MBE/WBE vendors. The Office of Material and Procurement Services issued 1,159 contracts in the last fiscal year; of those, 5.1 percent went to MBE/WBE enterprises.


Senator Karem, referring to Mr. Burnside's earlier statement that FAP #111-55-00 requires all agencies to consider MBE/WBE vendors, said that, to him, the word "consider" does not necessarily sound proactive. He asked for suggestions that could help the legislature and KMBC bring about greater minority participation. Mr. Burnside agreed on the need to be proactive. He said that it caught his attention in Mr. Webb's presentation that there are over 12,000 minority-owned firms in Kentucky; yet only 4,379 are registered as vendors with the state. He said this is an obvious disparity and that the Cabinet needs to look at what can be done to increase minority participation in the state system. He said that they will be more than happy to do whatever can be done to open the dialogue. Senator Karem said he would like to see everyone become more proactive—LRC staff, the Committee, the Finance & Administration Cabinet, and KMBC. Mr. Burnside said that he, Mr. Abbott, and Mr. Costner will go back and talk to people in the Cabinet to see what steps can be taken to be more proactive. He added that they will also be more than happy to help review any proposed legislation. Senator Karem concluded by saying that he wants more than review and openness to dialogue. He suggested to the speakers that they try to think of aggressive ways that all parties working together can deal with the issue, since everyone agrees that there needs to be more minority/women/disabled enterprise participation in state contracts.


Mr. Costner recounted some of the things that the Cabinet and other state government agencies have done to foster a better relationship with minority-owned businesses. He said FAC has worked with the Transportation Cabinet on an activity in Louisville called MED Week (Minority Enterprise and Development Week). He went on to say that MED Week did not happen this past year for financial reasons but that the year before it brought in approximately 500 minority subcontractors and vendors. FAC is also trying to work with the Lexington/Fayette County community's minority business expo. Mr. Costner said he has also worked with committees in Lexington that are developing a minority and women subcontractor training program. He said he believes these are the types of things that are needed.


Senator Karem said that most building projects involve multiple disciplines and multiple contractors. He asked whether there is any reason why state government cannot reach out to minority/women/disabled enterprises, when bids are received that demonstrate no minority participation. He also asked whether there is some limitation to prevent the state from sending a message that inclusion of minority-owned businesses is expected in the bid process.


Mr. Abbott said that some contracts bid in the last several years had points awarded for minority participation.—normally 10 percent of the overall bid package, with 90 percent still applying to the cost. He recalled a particular case in which a minority subcontractor participated in both bids of the two general contractors; in one bid package he had two percent participation and in the other 10 percent participation. Unfortunately for that particular subcontractor, the bid award went to the general contractor for whom the minority subcontractor had only two percent participation.


Answering an inquiry from Representative Arnold, Mr. Abbott discussed the procedure for determining whether contractors or subcontractors are qualified to do the work. He noted that references are required to be part of a bid solicitation and that all bids are subjected to a very detailed analysis prior to awarding of a contract.


Representative Lee asked what a minority contractor must do to be included in the vendor database and whether the Cabinet is proactive in letting minority contractors know how to participate in the bid process. Mr. Burnside said prospective vendors can register on the Cabinet's eProcurement web site, after which they will receive automatic bid notifications by e-mail. He said that FAC's Kentucky Procurement Assistance Program, in conjunction with the Small Business Administration, tries to target the MBE/WBE/DBE community to make sure they are aware of how to get bid opportunities—not only with state government but also with federal government.


Representative Lee said that there appears to be a need to be more proactive in closing the gap between the 12,000+ minority-owned businesses and the 4,379 that are registered vendors. He asked Mr. Web what the Council does to educate minority business owners regarding eligibility and bidding for state contracts. Mr. Webb said the Council is an information gathering network that does all it can to provide access to information and knowledge but is faced with a lack of information about how to be involved with state contracting opportunities. He said they are open to working with the state to do more in that capacity. He pointed out, too, that not all of the 12,000+ minority-owned businesses in Kentucky are in the Council's service area.


Senator Buford said he would like to have information about the number of times African-Americans have bid on a project; the number of times their bids were not successful; and, if the information is not privileged, the reasons their bids were not accepted. Mr. Abbott said that once bids are awarded, the records become public. He agreed to see whether the information requested by Senator Buford is tracked in the database.


Senator Buford said that legislation is probably needed to help African-Americans overcome the barriers created by bonding requirements. He suggested that it might be beneficial for the Workforce Development Cabinet or the Labor Cabinet to have a small division with one or two employees to assist African-American business owners with the bonding process. He went on to say that, most importantly, African-Americans are not being awarded contracts in proportion to the number who participate in the bid process, while white-females are getting about 90 percent of contracts awarded to MBE/WBE vendors. It will be difficult to enact legislation to improve the situation unless the legislature can have data to identify where the problems are.


Regarding bonding, Mr. Abbott said that the Cabinet had submitted a request to the legislature to increase the threshold for performance bonds from $25,000 to $40,000 (HB 405, sponsored by Representative Nunn in the 2004 Session) but that, unfortunately, the legislation did not pass. He agreed that bonding is certainly a significant issue for small business contractors and startup companies. He said that FAC would recommend passage of  legislation in the upcoming session to raise the  threshold .


Senator Buford said that minority companies might also have a problem securing financing to enable them to pay their subcontractors while awaiting payment from the state. He also said that their credit ratings may not be good enough when seeking bonding and financing and that these are areas in which the state might be able to provide assistance. Senator Buford asked whether other states have successfully dealt with this issue. Mr. Abbott said a lot of states are doing it wrong. He said the litigation rate in Kentucky relative to capital construction is less than 1/10 of one percent, whereas the litigation rate on capital projects in Ohio, for example, is somewhere between 75 and 80 percent. He then briefly reviewed the "MBE/DBE Participation" handout.


Representative Larry Clark said that he works in electrical contracting and that his firm does very little state work because of the procurement laws and the archaic process. He said he thinks that Kentucky needs to streamline its procurement laws to provide more flexibility and more opportunities to bid projects and to get them started in a timely manner. In addition, all contractors should be required to prequalify. He went on to say that a lot of firms do not bid any more because the process takes too long. He also spoke about the use of electronic reverse auctions in the procurement process. He said that in these auctions the computer will not show qualifications but just indicate low bidder. Reverse auctions would limit contractor participation and would be particularly disadvantageous for KMBC constituents. [Note: Some of Representative Clark's comments were inaudible due to technical problems with the sound system.]


Representative Marcotte said that Senator Buford made some very good points. He also encouraged committee members to read the newspaper articles in the meeting packet relating to minority-owned businesses. He went on to say that he would recommend that entities such as the Transportation Cabinet, the Finance and Administration Cabinet, the trade unions, and the Small Business Administration conduct small group meetings or seminars in an effort to get information to people so that they have knowledge of the money that is available and what they have to do to participate in state contracts. Senator Kerr pointed out that one of the news articles relates to the efforts of Lexington Vice Mayor Scanlon to be a greater voice of support for minority and women business owners in contracts that the city awards. She said that everyone needs to look toward such examples of people working together in both local and state government.


Representative Geveden next called on former state senator Georgia Powers; Beverly Watts, Executive Director of the Kentucky Commission on Human Rights; and Rev. Louis Coleman of the Justice Resource Center. (Representative Riner, earlier in the meeting, pointed out that they were in the audience and suggested that they be invited to speak.)


Senator Powers expressed appreciation for the opportunity to speak. She said it really concerned her when she read the headline that about only one percent of state awards going to MBE/WBE/DBE firms. She also said it saddens her to think that, 37 years after she entered the state Senate, the issue is still under discussion. She went on to say that she wonders whether she will live to see action taken to give more minorities and women an equal share of revenue from the state. She hopes each member of the Committee is sincerely interested in being active to bring about change. Several good suggestions have been made today, and if they are followed through, something might happen in the very near future. As to whether a contractor is qualified to do the work—a question raised by Representative Arnold—Senator Powers said she would think that the same method used for all contractors would be used for minority, women, and disabled contractors. She closed by saying that the legislature can make a difference and that she would like to follow up to see what is done. She challenged those present to come up with a plan that will work—that will be inclusive of all people in the state of Kentucky.


Beverly Watts spoke next. In summary, Ms. Watts said she would be retiring from the Commission on September 30. Fifteen years ago she was responsible for the minority female business program in Illinois, and based on that experience she has some suggestions regarding access to opportunity. There are a number of states where models are in place and are working. Indiana has been successful with projects in downtown Indianapolis, involving both private and public sector dollars. That state has been successful because they facilitated good communication about their programs and projects. However, success also entails people being able to see that contracts are being awarded. When she was in Illinois, she and her staff of 10 looked at federal models that worked to try to find one suitable for the locale. They partnered with Chicago's Minority Supplier Development Council in order to immediately have certified vendors in the database and thus avoid potential legal problems from using vendors who were not certified. They also sought out qualified minority vendors. Then-Governor Thompson, a Republican, appointed a 15-member council that provided oversight, developed policy, and made sure there was an ongoing process in place for every contract that was let to minority and female businesses—both federal and state fund contracts. The council included Republicans and non-Republicans, business owners, and individuals—union and nonunion—from both the public and private sector. In closing, Ms. Watts said she would urge anyone to do the same type of things done in Illinois.


Rev. Coleman commended the Committee for addressing the long-time issue of minority business participation. In summary, he said that neither the state nor the city of Louisville has a plan to deal with the issue. The Justice Resource Center had the opportunity to work on one of the largest construction projects in the world—the United Parcel Service Hub 2000 expansion in Louisville. There was over 35-40 percent MBE participation on that project. What the Committee is hearing today from the Finance and Administration Cabinet is what has been heard for 20 years. The Kentucky History Center construction project included zero African-American/minority subcontractors. CHAZ Concrete in Louisville was able to work on the $66 million Shawnee Expressway project only because the other concrete company could not do some of the work. Construction projects at Kentucky State University, a historically black college, included only one MBE subcontractor. This is an administrative problem that needs to be addressed, but attitude cannot be legislated. The bottom line is that the state needs a plan that has measurable workable goals that will be inclusive of African-Americans, Hispanics, and women—the total gamut. Local preference laws are also needed. Much of the construction money in the state of Kentucky goes to Ohio, West Virginia, and Indiana. Ohio has a preference law. The new Transportation Cabinet building in Frankfort was built by a construction company out of Cincinnati.


Rev. Coleman said that Senator Buford and Representative Clark hit on some key issues. He went on to say that the Finance and Administration Cabinet and the current administration need to come up with a strategic plan. Maryland has a good strategic plan and is doing the right thing. Kentucky probably is doing the worst job in the southern region when it comes to African-American participation in construction and business contracts. In closing, he said the Committee's concerns are legitimate and are 30 years overdue.  He said that the Justice Resource Center would like to assist in developing a strategic plan and could provide copies of strategic plans of Maryland and the city of New Orleans. He added that Mr. Webb is right on target and that Mr. Costner will find it difficult to do his job unless there is a plan in place and there is commitment from the top—from the Governor and the Finance and Administration Cabinet.


Senator Karem said he is sorry to see Ms. Watts retire and that she has done a wonderful job. He went on to say that he thinks Rev. Coleman "hit the nail on the head"—we do need a plan, and the plan has to start with attitude from the top down. He said that the Louisville/Jefferson County Metropolitan Sewer District (MSD) has a fine reputation with regard to minority participation—possibly because there is "attitude" there. He suggested that Senator Gerald Neal; Gordon Garner, MSD Executive Director; and Bill Stone (Mr. Webb's predecessor) be invited to tell the Committee how MSD has dealt with this issue. Ms. Watts agreed that MSD is a good example from the Louisville community. She said that Mr. Webb could probably provide others.


Senator Harris said it is obvious to him that this is not a Republican-Democrat issue. He said, as a UPS pilot, he appreciates Rev. Coleman's comments about the Hub 2000 project. He asked him whether contractors and subcontractors have been able to solve problems relating to bonding and training. Rev. Coleman said that David Cosby, one of the better prime contractors in Louisville, bonds all of his subcontractors, as does Lewis Smoot (Smoot Construction; Columbus, Ohio). He said that bonding is sometimes used as a tool for not doing the right thing, even though it can be done through the prime contractor. Another problem is that prime contractors often keep hiring the same subcontractors.


Representative Graham suggested that staff and the Committee look at those states that have had success—particularly, Illinois and Indiana. Rev. Coleman said he would be glad to provide a copy of Maryland's strategic plan and other models. He said it will be "business as usual" if the legislature does not have input into the situation. He added that he does not blame unions for not wanting to participate in state projects because the way people are paid is terrible. Ms. Watts said the Commission would also be glad to share information with the Committee.


Representative Geveden asked that Mr. Burnside, Mr. Abbott, Mr. Costner, and Mr. Webb meet with Ms. Watts, Mr. Coleman, and the MSD folks and then come back to the October meeting to discuss their ideas and proposals for making a difference. He said that any members of the Committee who would like to be directly involved should advise Senator Kerr or him. Senator Buford suggested that Ms. Turner or someone from the Governor's Office also be included, and Representative Geveden concurred. It was noted that Representative Clark and Senator Buford indicated they would like to participate.


Representative Graham told Senator Powers that she has been a role model for him and thanked her for her service to the Commonwealth. The Committee then gave Senator Powers a round of applause.


Tierra Kavanaugh-Turner, Executive Director of the Governor's Office for Minority Empowerment, was next to speak. In summary, Ms. Kavanaugh-Turner said she agrees with Senator Karem that there is an attitude problem. The Governor is sincere in his commitment to an attitude of inclusiveness for all. One of the initial charges he enlisted to her was to address the problem of minority and women-owned vendors in the state not receiving opportunities to procure state contracts. Her office has been reviewing the issue for quite a while and working with the Finance and Administration Cabinet and Mr. Webb to develop a plan. In the past, the issue has been talked about, but they are now hoping to get something done. Though attitude cannot be legislated, contract opportunities for minorities and women throughout the state can be—with the leadership and support of legislators. Many people are confused with the existing disadvantaged business certification process housed within the Transportation Cabinet, which is regulated by federal mandate. For the first time, her office is working on a state-regulated certification program. So far, the timeline for the plan is not finalized, but they have been reviewing the statutes that might need revision in order to assist minorities and women with equal opportunities. In closing, Ms. Kavanaugh-Turner said she is open to suggestion as development of the plan progresses. Senator Harris asked Ms. Kavanaugh-Turner whether she anticipates having a legislative package ready for the next session. She responded affirmatively but said she cannot yet provide specifics.


Representative Harmon noted that Ms. Kavanaugh-Turner's family lives in his district. He said he is sure she will do a great job in her new office, and he thanked her for coming to the meeting.


Representative Graham asked whether the administration has looked at what has been done in Illinois, Indiana, and Maryland. Ms. Kavanaugh-Turner said that soon after her appointment in March, she had numerous conversations with Maryland's Lieutenant Governor Steele regarding legislation recently passed in that state. Her office has also looked at the programs in Indiana and Illinois.


Senator Kerr expressed thanks to the guest speakers and then presented the subcommittee report for the Task Force on Elections, Constitutional Amendments, and Intergovernmental Affairs, which met the previous day. She said the Task Force received an update from the Executive Director of the State Board of Elections regarding implementation of the Help America Vote Act. Issues and concerns of county clerks were also discussed, and activities of the Registry of Election Finance were explained by the Registry Chairman.


Representative Geveden told Ms. Watts that Kentucky owes her a debt of gratitude for her work for the Commonwealth and said that she will be missed. The Committee then commended her with a round of applause. Business concluded, and the meeting was adjourned at 3:22 p.m.