September 13, 2007

Via email and fax

Deputy Director, Office of Civil Rights

California Department of Transportation

Sacramento, California

Re: Comments from American Civil Rights Institute and Center for Equal Opportunity on “DBE Goal and Methodology” per June 29, 2007 Availability and Disparity Study

Dear Ms. Fonseca:

On behalf of the American Civil Rights Institute (www.acri.org) and the Center for Equal Opportunity (www.ceousa.org), I am submitting these comments on the “DBE Goal and Methodology” per the June 29, 2007 Availability and Disparity Study (Final Report).

Overview and Summary

We urge that Caltrans not adopt any measures that give preference on the basis of race, ethnicity, or sex.

Caltrans proposes to include preferences based on race, ethnicity, and sex in its contracting under the federal highway program, notwithstanding the ban on such discrimination in the California constitution. To justify this, Caltrans must prove that this is an “action which must be taken to establish or maintain eligibility for any federal program, where ineligibility would result in a loss of federal funds to the state” (quoting the state constitution, emphasis added).

The first point we want to make is that Caltrans has not shown, nor are we aware that it has even asserted, that the U.S. Department of Transportation will cut off federal funding to Caltrans unless it chooses to use racial, ethnic, and gender preferences in its contracting. The Pacific Legal Foundation’s letter to you explains why, in fact, USDOT does not require such discrimination, even if it sometimes permits it. We think it is very unlikely that the Bush administration will insist that Caltrans must adopt preferences.

Second, even when USDOT contemplates the use of such preferences, it does so--and can do so--only when those preferences are constitutional, which means that Caltrans must show (a) that there is a disparity in the contracting resulting from discrimination, and

(b) that the only way to end this discrimination is through the use of preferences (as opposed to race-neutral methods). Caltrans has done neither, as a careful analysis of its Goal and Methodology and its Final Report shows.

Our third point is in some respects the most important but is also easy to lose sight of as the minutiae of the disparity study are discussed: If it is at all a close question, then Caltrans should not use preferences based on race, ethnicity, and sex. Caltrans should have a strong presumption that it ought to avoid such discrimination and, in close cases, not adopt discriminatory policies; that was not, however, the way Caltrans proceeded here. As we just noted, such discrimination is allowed only if it must be taken or else federal money would be lost. For all the reasons discussed above, there is a very good chance--indeed, a likelihood--that the federal government will not require Caltrans to use preferences; if the Bush administration decides to insist on such discrimination, it can always so notify the state, and a racially preferential plan can be implemented at that time. To put it another way: Caltrans should strive both to avoid using the preferences banned by the state constitution and to comply with federal law. Why choose deliberately to violate one or the other so long as there is a good possibility that it can comply with both? Caltrans should be going out of its way to avoid the use of preferences based on race, ethnicity, and sex--not out of its way to find excuses for them.

Failure to Show a Meaningful Disparity Resulting from Discrimination

Great care must be used in any disparity study if it is to show discrimination as a first step in seeking to justify the use of preferences based on race, ethnicity, and sex--and that care was not taken here. The disparity study that is the basis for the Caltrans approach has a number of technical and methodological problems. In our discussion, we will begin by making some general points about the use of disparity studies to show discrimination, and then make some specific points regarding the particular evidence on which Caltrans is relying.

General points about using disparity studies to show discrimination. The starting point of any legal analysis is: "A racial classification, regardless of purported motivation, is presumptively invalid and can be upheld only upon an extraordinary justification." Personnel Administrator v. Feeney, 442 U.S. 256 (1979). This “strict scrutiny” is triggered by “all racial classifications, imposed by whatever federal, state, or local governmental actor.” Adarand Constructors, Inc. v. Pena, 515 U.S. 200 (1995). This is true whether there is an out-and-out set aside or quota, or whether there are race-based “discounts” made in evaluating contracting bids (see, e.g., Adarand), or whether there are contracting percentage “goals” (see Lutheran Church–Missouri Synod v. FCC, 141 F.3d 344 (D.C. Cir. 1998))--which, as a practical matter, inevitably become quotas anyway.

Once strict scrutiny is triggered, a court will look to see, first, whether the use of race is justified by some “compelling” government interest, and, second, whether the use of race is “narrowly tailored” to achieving that interest--that is, that the use of preferences is essential and that they are used no more than is necessary.

In the government contracting context, the only compelling interest that can be put forth is the remedial one--that is, in correcting discrimination against the racial group that is awarded the preference. Thus, the government could not claim that it wanted greater intellectual or viewpoint “diversity” among its contractors: There is no black way or white way or Hispanic way or Asian way to build a guardrail or fill a pothole.

This is where disparity studies come in. The idea is that the “underutilization” of contractors of this or that color may be evidence that they are suffering discrimination--a necessary precondition to the invocation of the remedial justification. But disparity studies are frequently flawed; some of the pitfalls are discussed in the U.S. Commission on Civil Rights’s report, Disparity Studies as Evidence of Discrimination in Federal Contracting (May 2006).

As we discuss the care that must be taken in ensuring that the evidence marshaled in a disparity study actually does demonstrate discrimination, bear in mind that, while the presence of discrimination is a necessary condition to the use of racial preferences, it is not sufficient, for the government also needs to demonstrate that the use of preferences is “narrowly tailored” to correcting whatever discrimination is found. This means, among other things, showing that there is no other way to end the discrimination other than by using racial and ethnic preferences. And, in 2007, this simply cannot be done.

With regard to the first prong of strict scrutiny--that is, demonstrating that significant racial and ethnic discrimination against minority-owned businesses in contracting exists in the first place--there are basically two ways to meet it: through anecdotal evidence, and through statistical evidence.

With regard to anecdotal evidence, that evidence should be weighed for its reliability and its recentness; considered in the context of its typicality and how many contracting decisions are made (so that there is a clear pattern of consistent discrimination); and collected evenhandedly, so that discrimination against all racial groups (including non-Hispanic whites, for instance) is considered. Finally, there must be a link shown between the discrimination against a particular group and the denial of contracting opportunities to members of that group.

With regard to statistical evidence, it must always be borne in mind that “disparity” means only “difference,” and it takes more than that to show discrimination. Thus, it is immediately obvious that simply showing a disparity between a racial group’s percentage in the general population and the percentage of contracts awarded to companies owned by that group is meaningless, because that group may simply not own companies in the same proportion as its share in the general population. We don’t expect half of all companies to be owned by women, even though half of all our people are women. For one thing, many companies are owned by hundreds or thousands of stockholders, and so are neither “male-owned” nor “female-owned.” So the figures must be adjusted accordingly.

But this is not enough either. The percentage of minority-owned companies generally may not be the same as its percentage in the particular markets where you find government contracting. For example, there may be a high percentage of Korean-owned businesses in a city, but if most of those businesses are mom-and-pop grocery stores, the percentage is misleading, since this may not be a sector in which there is much government work we expect grocery stores to bid on. So the percentage has to be adjusted again.

And this is not enough either, because it may be that the companies owned by a particular racial group in a particular market do not have the specific expertise or capability of doing the actual work sought. And, even if they are, there may not be a problem if these companies are for nondiscriminatory reasons not submitting bids in the first place.

Finally, even if it is shown that a particular group bids on contracts in a particular market and fails to receive the contracts in its proportion, this does not mean that discrimination has occurred: The explanation may be simply that the bids submitted by the minority company were not the best bids, because they were too high or failed to meet other objective qualifications.

It must always be borne in mind that what be shown is not simply a disparity, but discrimination. One cannot with confidence jump from a disparity--even an unexplained one--to discrimination, unless it is extremely severe or unless there is also direct, anecdotal evidence to suggest that the disparity is caused by discrimination.

Why Caltrans here has failed to show discrimination. As discussed above, any attempt to find discrimination in a contracting area must evaluate both anecdotal and statistical evidence. Neither suggests a strong case for discrimination here.

With regard to anecdotal evidence, while Appendix I of the Final Report is 160 pages long, only pages 124-133 contain “Anecdotes Regarding Race, Ethnicity, and Gender.” The headings make the point that Caltrans hardly faces an environment rife with discrimination against minorities and women.

Only the last headings two clearly suggest that discrimination against minorities and women is currently a problem; here are the others, in sequence: “Few minority or female-owned businesses feel that race, ethnicity, and/or gender negatively affected their ability to obtain or engage in business”; “Some white male-owned firms feel that their race negatively affected their ability to engage in business”; “Some of these non-DBE firms feel they have lost work to DBEs”; “Some minority and female-owned businesses did not feel that race or gender affected their ability to engage in business”; “Some minority firms feel that their race helped them get business”; “Some minority or female-owned businesses were ‘not sure’ whether their race, ethnicity, and/or gender affected their ability to engage in business, but suspected it had some impact” (this actually overstates any suspicion found in the discussion); “Some minority and female-owned business [sic] feel that race or gender did not affect their ability to engage in business in the public sector but did affect their ability to engage in business in the private sector”; “Some white male-owned firms viewed the industry as open and accepting”; “A non-DBE felt that discrimination in California is minimal”; “Several interviewees mentioned that price, not race or gender, is the motivating factor for primes in selecting subcontractors”; “Some DBE firms also feel that the work environment was generally good”; and “Some trade associations classified the work environment as positive while stressing the continued relevance and importance of government assistance programs.”

The last two headings are “Some DBE firms feel that DBE firms were held to a higher standard than their non-DBE counterparts” and “Some firms perceive the work environment as less favorable to DBEs than it had been in the past,” so let’s look at those more carefully. The latter reads, in its entirety: “Interviewee #35, a white female-owned firm, classified the work environment for DBEs as ‘favorable … but maybe less favorable than it was in the past … because of minimizing affirmative action … there is more of a push toward general equality than favoritism” (ellipses in original); in other words, one interviewee is referenced, and what she says is that, while conditions are “favorable” and there is “a push toward general equality,” it’s not as good for DBEs as when they were getting preferential treatment. No doubt. The former heading includes four minority-owned companies (as opposed to trade associations); one says only that “the work environment is improving,” and another that he believes the work environment “is generally good, but feels that DBE companies are scrutinized a little more.” So we are left with only two critics--one who complained that DBEs were only “tolerated” rather than “welcomed with open arms,” and that other who “believed DBE firms were viewed as less capable and that DBE utilization was not what it should be.” That’s it.

There is a brief section on pages 99-100 titled, “Denial of payment based upon race,” which begins, “Only one of the DBE or M/WBE businesses interviewed stated it feels its payment had been delayed or denied due to the company’s status as a disadvantaged-, minority-, or female-owned enterprises [sic] (Interviewee #31). Otherwise, there were no complaints by the DBEs or M/WBEs of payment being delayed or denied on the basis of race, gender or ethnicity.”

Elsewhere in the Final Report as well (e.g., in Sections V-VIII), it is rare that a problem facing a contractor or subcontractor can be fairly described as being racial, ethnic, or gender rather than financial, technical, or practical.

It is something of an understatement, then, that the Summary of the Final Report notes that “many of the firm owners providing anecdotal information as part of this study pointed to barriers other than race and gender discrimination.” Section X, page 4; see also id., pages 3-4.

Given this paucity of anecdotal evidence, it would require robust statistical evidence indeed to show enough evidence of discrimination to justify preferences, but the statistical evidence relied upon is in fact flawed and, where it is not flawed, is nonetheless weak. Bear in mind that Justice O’Connor warned in Croson that it is only “[i]n the extreme case” that “some form of narrowly tailored racial preference might be necessary to break down patterns of deliberate exclusion” (488 U.S. at 509, emphases added); she did not say that preferences are justified by minor, unexplained statistical disparities unsupported by other evidence of intentional exclusion. It does not seem to us that Caltrans asserts, and it certainly does not prove, that its contracting system is rife with such discrimination in 2007.

Likewise, it should be borne in mind that underrepresentation of firms owned by this or that ethnic group traceable only to society generally (e.g., a lack of educational opportunities) cannot as a legal matter justify the use of racial preferences, as the Supreme Court has consistently ruled. Instead, what must be shown is that minority- and female-owned firms are either not submitting bids because of discrimination, or that their bids are not being accepted because of discrimination. Again, this has been neither asserted nor proved.

The study includes uncertified minority- and female-owned companies in calculating DBE availability, even though it is certified DBEs that USDOT is interested in; the Final Report seems to acknowledge that this was a debatable decision. Section II, page 2-3. By the same token, it is likely and certainly plausible that a different methodology would not have tended so much to undercount non-DBE capacity (e.g., it was not necessary to lump all firms with a capacity greater than $20 million--no matter how much greater--into the same category). Another red flag is the fact that, according to the Final Report, the appropriate DBE utilization rate is 13.5 percent, and the MBE/WBE utilization rate is 14.7 percent; this suggests that the evidence of underutilization is weak and, thus, so is the justification for preferences. Section ES, pages 2-3. In this regard, we think it is also significant that the Final Report concluded that, after Caltrans discontinued DBE contract goals on May 1, 2006, “overall MBE/WBE utililization showed little change following adoption of an all race- and gender-neutral program.” Section ES, page 3; see also id., Section IV, page 21 (next-to-last bullet), and Section X, page 2.

Ironically, some of what the Final Report recommends that Caltrans do is already apparently required by federal law (Final Report, Section IX, page 8), and, since some of the shortcomings involve Caltrans’s data collection and tracking, it follows that, with better data, it may turn out that there is less of a disparity than now thought and, in any event, less reason to use race preferences.

In another criticism of Caltrans’s metrics, the Final Report (Section X, page 5) declared:

Caltrans needs additional metrics to track success beyond those suggested in the Federal DBE Program, including careful tracking of MBE/WBEs (not just DBE participation) in both federally-funded and state-funded contracts. For example, one measure of Caltrans’ success should be the number of minority- and women-owned firms that grow too large to be eligible for DBE certification. To this end, Caltrans will need to refine its data collection systems in collaboration with local agencies. These steps are critical for Caltrans to be in compliance with the Federal DBE Program and ensure that it is not an active or passive participant in race or gender discrimination against minority- and women-owned firms.

The Final Report lists some plausible “Factors that Suggest a Downward Adjustment to the Overall Goal” (Section III, pages 1-2). With regard to the “Factors that Suggest an Upward Adjustment to the Overall Goal,” however, there is nothing to suggest--and no assertion is made--that any of them have anything to do with past or present discrimination (id., pages 2-4). Indeed, the discussion even acknowledges at one point that “Problems in obtaining bonding were reported in interviews with minority- and women-owned firms and non-minority-owned firms” (id., page 4; emphasis added). Many of the “step two” factors that were considered had nothing to do with discrimination, let alone discrimination in the construction industry. If such factors had been discounted, then it might not have been the case that the valid step-two factors would have canceled in each out; instead, they might have argued for a significant lowering of the base figure. See Goal and Methodology, pages 4-7.

In this vein, too, it is unclear why the focus is simply on whether a minority/female group is doing worse that non-Hispanic-white males. Why, for example, are various minority groups not compared to one another, and why is the group not assessed a negative preference if it outperforms non-Hispanic-white males (see, e.g., Goal & Methodology, page 6--“After controlling for other factors, Subcontinent Asian Americans who own construction firms earn more from their businesses than non-Hispanic whites …”)?

Finally, in deciding whether an interest is so “compelling” that is justifies racial discrimination, one must consider the inherent costs of such discrimination. See Parents Involved in Community Schools v. Seattle School District (2007), slip op. 38 (plurality opinion). It is inherently divisive, stigmatizing (see, e.g., Final Report, Section V, page 4), unfair, and immoral for a state agency to treat its citizens differently based on skin color, what country their ancestors came from, and their sex. The costs rise even higher when the people of a state have written a prohibition on such discrimination into their state constitution. And, finally, the use of preferences has economic as well as social costs. See, e.g., Justin Marion, How Costly Is Affirmative Action? Government Contracting and California’s Proposition 209 (November 2006) (“After Proposition 209, the winning bid on state funded projects fell by between 3.1 and 5.6 percent relative to federally funded projects, for which preferences still applied”) [link: http://people.ucsc.edu/~marion/Papers/Prop209_nov2006.pdf].

Failure to Show that Neutral Methods Will Not Suffice

And even if --through statistical evidence or anecdotal evidence--a pattern of recent discrimination is found, it does not follow that racial and ethnic preferences must be used to correct it. Our discussion here will make some general points about why neutral methods will generally be available, and then will point out why Caltrans specifically has failed to show, based on its own documentation, that such methods will not suffice.

General points. At every step of the process, it is clear that there are more narrowly tailored remedies to ending discrimination than using preferences based on race, ethnicity, or sex. If companies are being excluded from bidding because of unrealistic or irrational bonding or bundling requirements, then those requirements should be changed for all companies, regardless of the skin color of the owner. If companies who could submit bids are not doing so, then the publication and other procedures used in soliciting bids should be opened up--but, again, to all potential bidders, not just some. And, finally, if it can be shown that government bids are being denied to the lowest bidder because of that bidder’s race or sex, then there should be put in place safeguards to detect discrimination and sanctions to punish it--but, again, those safeguards and sanctions should protect all companies from discrimination, not just some.

Contracts are not like hiring, promoting, or even university admissions, where there is an irreducible and significant amount of subjectivity in the decisionmaking. Contracting is an area that can be made very transparent and where this transparency should make it relatively easy to detect and correct discrimination.

It must always be borne in mind that the aim of the alternatives is to correct and end discrimination--not to achieve a particular percentage of contracting by this or that racial, ethnic, or gender group. And even if there could still, in theory, be a few cases of discrimination that go unremedied in the absence of racial classifications, there will be many more cases of discrimination that will result from the institutionalization of racial, ethnic, or gender preferences.

The Supreme Court recently held in Parents Involved in Community Schools v. Seattle School District (2007), that a failure to consider seriously race-neutral alternative makes the use of race unconstitutional (slip op. 27-28). And a study published in 2005 by the U.S. Commission on Civil Rights did a very good job of collecting and discussing these race-neutral alternatives; in our view, they have not been fully taken advantage of by Caltrans. U.S. Commission on Civil Rights, Federal Procurement after Adarand (September 2005). As Chief Justice Roberts wrote in the Seattle case (slip op. 40-41): “The way to stop discrimination on the basis of race is to stop discriminating on the basis of race.”

In sum, as discussed in the preceding section, great care must be taken in preparing a disparity study to ensure that the evidence marshaled actually demonstrates discrimination. But even where this is done, we doubt that--in 2007 (not 1957) in California (not Mississippi)-- a study can ever justify the use of racial, ethnic, and gender preferences as the only way to end any residual discrimination that is speculated to exist.

Specific points regarding Caltrans. The Final Report concludes that Caltrans has not fully explored and implemented the use of race-neutral remedies.

The report says that the agency “has implemented some of the types of neutral remedies suggested in the Federal DBE Program but not others”; that “[s]ome neutral remedies are in place in some districts or regions of the state but not others”; that “[a]dditional actions such as developing a bidders list and improved data collection, tracking and reporting are necessary to be able to fully measure success and effectiveness of neutral measures in creating opportunities for minority- and women-owned firms”; and, finally, that “Caltrans should consider results of the disparity analysis, marketplace information, qualitative information and analysis of remedies in determining whether any portion of the overall annual goal for the next fiscal year should be achieved through race- or gender-neutral means.” Section ES, pages 4-5; see also id., Section X, page 4.

In addition, the Final Report found that “Caltrans will need to devote additional resources to implementing neutral measures” (id., page 5) and that “Many of the barriers reported by minority- and women-owned firms suggest further neutral measures,” including “Better outreach and communication,” “Additional technical assistance to small businesses and DBEs,” “Redesigning contractor and consultant selection practices to provide more opportunities for small businesses seeking construction and engineering prime contracts,” and “Bonding programs and other assistance to small businesses and DBEs” (id.). (This echoes findings in a 2006 report by the Discrimination Research Center, Free to Compete:  Measuring the Impact of Proposition 209 on Minority Business Enterprises; while hostile to Proposition 209, this report, relying on MBE focus group responses and personal interviews, ironically buttresses the point that it is not discrimination that poses the real challenge to minority businesses, but more technical barriers, such as bonding requirements, insurance, financing, and the like.  See, e.g., id. at 34-41.)

Just with respect to “Business Outreach and Communication,” the report lists several areas where “Caltrans could make further efforts,” and many of these “additional steps” it could take are glaringly obvious: “sending notice to registered firms within the relevant fields, enclosing lists of potential subcontractors as an attachment to the solicitation, and providing information in languages other than English”; “further develop[ing] the content of its website”; “seek[ing] new relationships with trade associations and professional organizations”; and participating in various networking and other events, including trade shows, procurement fairs, seminars, training conferences, and pre-bid conferences. Final Report, Section IX, pages 2-4. The report suggests “expanding the scope of [technical assistance] services dramatically” (id., page 4); if a dramatic expansion is to be undertaken, it is obviously too soon to conclude that race-preferences will nonetheless also be necessary. Ironically, some of what the report recommends that Caltrans do is already apparently required by federal law (id., page 8). And, since some of the shortcomings involve Caltrans’s data collection and tracking, it follows that perhaps, with better data, it will turn out that there is less of a disparity than now thought and, in any event, less reason to use race preferences.

Moreover, the Final Report’s list of possible neutral measures is “not exhaustive” (Section IX, page 1). And Addendum A to your Goal and Methodology lists 45 “Enhanced Race-Neutral Measures” that are at this point only “Planned.” Even more significant, perhaps, is the fact that the Final Report (Section IV, page 22) concedes: “It is too early to determine whether overall MBE/WBE utilization on federally-funded contracts will remain at this level [i.e., at the same level as when DBE contract goals were being used] without DBE contract goals.”

In its August 2001 brief in Adarand Constructors, Inc. v. Pena, 515 U.S. 200 (1995), the U.S. Department of Justice told the Supreme Court that USDOT’s program “may use race-conscious remedies only as a last resort” (citing 49 C.F.R. 26.51(a)), “where the effects of discrimination are stubborn, persistent, and incapable of eradication through race-neutral measures.” This means that the federal government itself believes that preferences may be used only after all other means have been tried and have failed. How can one say that “the effects of discrimination are stubborn, persistent, and incapable of eradication through race-neutral measures”--how else can something be said to be a “last resort”--unless you have first tried the other, race-neutral measures first?

Since, as discussed above, Caltrans has not fully implemented neutral measures in many places; has not implemented many measures anywhere; is not fully measuring the impact of race-neutral measures; has not fully considered all data in determining what portion of its goal should be achieved through race-neutral measures; and, indeed, has strong evidence that DBE goals may not be having a substantial impact now anyhow--in light of all this, Caltrans cannot claim that it has established that preferences are necessary.

If There Is Doubt, It’s Illegal to Discriminate

Finally, Caltrans if of course aware that there is in general a state constitutional ban on the use of preferences based on race, ethnicity, and sex in Caltrans’s contracting programs. Such discrimination is allowed only if it is must be undertaken or else the loss of federal money would occur. (We note, as we did at the outset, Pacific Legal Foundation’s discussion of why USDOT’s program does not make the use of preferences mandatory. We also stress that regulations for that program should be construed to avoid constitutional problems, and that means they should not be construed to require preferences in circumstances when a court would not allow them.)

Accordingly, in a close case the use of preferences should not be proposed; if the federal government disagrees, rejects all arguments by the state and others that fighting discrimination does not require more discrimination, and wishes to require the use of preferences, it can always so notify the state, and a racially preferential plan can be implemented at that time. In this regard, we note that the Final Report concludes, “It is too early to tell whether or not overall MBE/WBE utilization will … decline for federally-funded contracts without DBE project goals.” Section ES, page 4. See also id., Section X, page 2 (“It may be too early to tell whether or not MBE/WBE utilization on federally-funded contracts will continue at this level or whether utilization will decline to what it was for state-funded contracts”).

To put it another way: Caltrans should strive both to avoid using the preferences banned by the state constitution and to comply with federal law. Why choose deliberately to violate one or the other so long as there is a good possibility that it can comply with both?

Caltrans should be going out of its way to avoid the use of preferences based on race, ethnicity, and sex--not out of its way to find excuses for them. Indeed, our understanding is that Caltrans could very easily have determined that the use of preferences was unnecessary, but unfortunately decided at the eleventh hour to twist its recommendations 180 degrees. With all respect, we must note in this regard that the 50-50 split between race-conscious and race-neutral measures suggests politics and public relations, not disinterested statistical analysis.

Thank you very much for the opportunity to present these comments. Please do not hesitate to call me at 703/442-0066 if you have any questions or wish to discuss our comments further.

Sincerely,

Roger Clegg

President and General Counsel

cc: Governor Schwarzenegger

U.S. Department of Transportation

U.S. Department of Justice