More and more cities are prioritizing procurement reform—and for good reason. Perhaps no other system is capable of producing such positive, local economic value. At a time when big businesses are shedding jobs and over 60% of net new job growth is coming from small businesses, cities can leverage their procurement spending, estimated at $1.6 trillion annually in the U.S., to support local, small business. When it works well, a city’s procurement process can encourage participation and foster the growth of diverse local vendors; these firms, in turn, produce local supply chains, boost employment of local residents, and ultimately generate local tax revenue.
For the newest group of cities joining the City Accelerator, a joint initiative of the Citi Foundation and Living Cities to foster municipal innovation, it is imperative that procurement drives inclusive economic opportunity. Over the next 12 months, Charlotte, Chicago, Los Angeles, Memphis, and Milwaukee will each receive coaching, technical assistance and a $100,000 grant to implement new strategies that increase the diversity of municipal vendors and contractors and direct more spend to local minority-owned businesses. The cities will convene periodically to report on their progress on implementing solutions and work together to share best practices with one another and the field. Their lessons and accomplishments will not only ignite business dynamism in their cities but other cities across the U.S. Take a look at the challenges and opportunities the cities are embracing:
Eliminating Information Barriers and Building Capacity
After a 2014 study ranking the City of Charlotte last in economic mobility among the 50 largest cities, Mayor Roberts and other city leaders committed to community-wide action to address the significant social and economic disparities community residents face, despite its vibrant growth and economic expansion. Of the $41 million the City of Charlotte spent on small business enterprises 66 percent went to businesses owned by white males. Through the City Accelerator, Charlotte will train city staff to eliminate information barriers faced by minority business enterprises seeking city contracts, and they will encourage corporations and other anchor institutions to do the same. Based on surveys and focus groups with more than 250 small businesses in the community, Charlotte will also offer online resources, training and technical assistance, and strategic mentoring to help business owners build capacity in the areas of finance, hiring for strategic growth, and marketing.
Increasing Accountability and Impact
The City of Chicago is seeking to build greater transparency as well as diversify the pool of businesses that bid on the more than over 2,500 contracts that the city awards annually. Leading the way is Chicago’s Department of Procurement Services, which wants to balance its role to provide competitive goods and services for the City with its role as a buying engine of the local economy by ensuring fairness, competition, and best value for all of Chicago’s taxpayers. Since May 2015, the City and its sister agencies, such as the Chicago Housing Authority and the Chicago Public Schools, have been working together through Mayor Emanuel’s Procurement Reform Task Force to implement reforms for greater efficiency, accountability, and impact. Through the City Accelerator, Chicago will tackle the development of a universal procurement platform – as well as a shared contract compliance system – across separate public entities that spend a combined annual total exceeding $6 billion.
Building Business Connections and Institutionalizing Change
The City of Los Angeles spends upwards of $8 billion a year to procure commodities, construction and professional services. Mayor Garcetti and city leadership are seeking to leverage these procurement dollars to support local, small, and diverse businesses but recognize that small business owners, particularly entrepreneurs of color, received less than 10 percent of the $1.475 billion General Fund departments spent on professional services in 2015-16. On average, it takes a professional services contract longer than 400 days to get through the Los Angeles procurement process; most small businesses lack the organizational and financial endurance to make it through that process. The city’s efforts to achieve a triple bottom line by diversifying and expanding the pool of companies it contracts with is limited by Proposition 209, which was passed in 1996, and prohibits public institutions from implementing a local business preference program or a local business program that references race and gender. Nonetheless, the city is committed to developing a robust supplier diversity program to grow its local economy by institutionalizing inclusive procurement practices across City agencies. Through the City Accelerator, the city hopes to connect diverse businesses to this more inclusive procurement process through a partnership with the South Los Angeles Transit Empowerment Zone (SLATE-Z).
Making Data-Driven Improvements
The City of Memphis’ Office of Business Diversity and Compliance motto is #wemeanbusiness. One example of their dedication is the dramatic increase in minority and women-owned businesses (MWBE) contract spending in the 16 months since Mayor Strickland took office. The amount of Memphis’ city contract spending that went to MWBEs was 12.6 percent when he first took office, but as of March 2017, contract spending to MWBEs went up to 20.2 percent—that’s a 60 percent increase. Using an updated study of disparities in city contracting to highlight key needs and opportunities, the City of Memphis will pursue needed policy and process reforms in the procurement system. The City will use data to target improvements to sectors where minority vendors are currently available but are being underutilized in the public procurement system.
Increasing Partnerships and Networks
With a population of just over 600,000, the City of Milwaukee spends more than $200 million on contracted services annually, ranging from construction to copier maintenance. Local business participation and local hiring are encouraged by the city’s Resident Preference Program, along with a Revolving Loan Program and Local Business Enterprise program. However, despite the fact that Milwaukee is a “minority-majority” city, only 30 percent of the city’s businesses are owned by people of color. The City’s Ordinance 370, adopted in 2012, restricts the City from directing efforts toward increasing the number of minority or women-owned small business owners. Like many cities with race-neutral programs, Milwaukee continues to seek ways that fall within their policy to increase small business participation. Through the City Accelerator, Mayor Barrett and the Common Council want to build partnerships with entrepreneurs, small business owners, lenders, and business development organizations and to use data to identify promising sectors for contracting and business expansion support.
Much of the cost and complexity built into procurement systems was designed to reduce the risk assumed by governments when contracting with vendors, and ensure that cities remain accountable to taxpayers. However, inefficient and opaque procurement processes threaten small business growth, which is a key lever in creating jobs. As the creators of 63 percent of net new jobs in the country, small businesses are the backbone of an inclusive economy that can be addressed and advanced through innovative procurement policy. We congratulate these five cities for taking on this new City Accelerator initiative. Building off of the municipal innovations sustained by our previous accelerators, the new practices and strengthened policies tested by this group will further equip cities across the country to overcome the challenges that limit a city’s potential to create an economy in which every resident can thrive.