The City of Omaha's small-business contracting program is generating only a trickle of business and jobs for the city's high-poverty neighborhoods, its primary target.
The Small and Emerging Small Business Program, shorthanded as SEB, has indeed helped local small businesses to land millions of dollars in city construction and other projects — more than $19 million in 2014, according to city records provided in response to a public records request.
That was just over 9 percent of the $210 million in city contracts awarded in 2014. Mayor Jean Stothert and city officials cite those numbers as evidence of progress during an ongoing controversy over the issue.
But a World-Herald analysis shows that only a fraction of the SEB contract money has found its way to businesses in the highest-priority neighborhoods in north and South Omaha — and to only a handful of businesses.
ONLY IN THE WORLD-HERALD
"If you have the manpower, the equipment, the bonding and the insurance, they'll give you a chance."
Kerry Jackson, left, owner of Jackson's Complete Concrete
Despite weeks of debate over the program, the figures are the first to show how the city is actually spending its money.
One company from outside the high-priority target area, Swain Construction, won more than half of all city contracts awarded in 2014 to program participants. Swain received $10.5 million in city contracts last year.
By contrast, a combined $2.9 million in contracts went to 13 Tier I small businesses — those that are located in high-poverty, high-unemployment parts of Omaha and with at least 20 percent of their employees living in those districts.
But much of that money did not stay in the impoverished neighborhoods.
For example, the largest Tier I contract winner, Mark VII Enterprises, is a general contractor that won nearly $900,000 in city contracts in 2014. While a true success story of the program, Mark VII has only six employees. It farmed out much of the work to subcontractors.
The Tier I businesses that won city contracts in 2014 employed a total of 39 people from the high-poverty, high-unemployment census tracts, according to city records and the companies.
The issue represents a long-standing problem: how to direct city contracts and spending to areas that need their economic boost the most. Debate at City Hall has been renewed at a time when the city is spending massive amounts on overhauling its sewer system, much of it in high-unemployment pockets of north Omaha.
City Council members Ben Gray, Pete Festersen and Chris Jerram, Democrats who have become increasingly critical of the Republican Stothert, have pushed the hardest on the issue.
Festersen, the council president, said that the SEB program is an important part of the city's overall efforts to combat poverty and unemployment, but that it is falling short of its role.
Jerram said the figures show that the city's small-business program hasn't met the expectations the council had for it when the program was adopted in 2009, after affirmative action was ended.
"It's evident that we're falling far below the goals that we should all find acceptable for our city," Jerram said. "We've lost five years."
Gray, who represents north Omaha, was more blunt, placing the fault on Stothert and Public Works. Gray said the city isn't trying hard enough and isn't even complying with details of the ordinance.
"The city is not taking this ordinance seriously," Gray said.
Stothert and city department heads in charge of the program said making it work is a high priority, and that it is moving in the right direction. In 2013 the city and its general contractors awarded $20.1 million in contracts to businesses certified in the program. That was about 15 percent of all city contract money.
Public Works Director Bob Stubbe cited businesses such as Mark VII Enterprises and Jackson's Complete Concrete.
Mark Santo, a military veteran, started Mark VII in 2010 with a city contract to renovate the kitchen in an Omaha Fire Department station. Five years of solid performance later, Santo has a bonding capacity of more than $2 million and has landed contracts with the U.S. Department of Veterans Affairs and other agencies.
Kerry Jackson, owner of the homegrown north Omaha business Jackson's Complete Concrete, has landed several city sidewalk contracts.
Stubbe said the city has made that possible by breaking up large contracts into smaller ones and paying the business more frequently than the city usually does.
Asked about the relatively small amount of contracts going to Tier I businesses, Stothert noted that the ordinance doesn't require the contracts to be spread equally between Tier I and Tier II businesses.
But she said she wants to increase city contracting with businesses from high-poverty neighborhoods to help address poverty and unemployment, and is taking steps to do so.
Last month, Stothert announced that she had created the Mayor's Office position of deputy chief of staff for economic inclusion. She elevated a member of her staff, Spencer Danner, to that job. She said she has ordered a thorough review of the SEB program.
Stothert said Public Works Department staff will break up more projects into smaller pieces so small businesses can compete for them. She also recently announced plans to create a "one-stop shop" for business training and other services to help small businesses become qualified to compete for city contracts.
She expressed concern about the number of businesses certified in the program. It peaked at 215 in 2012 and had decreased to 179 by last year. And many businesses have been letting their certifications expire.
"The pool has gotten smaller in our SEB program," Stothert said. "That's our tool we have. ... If we want more opportunities for those small businesses in some of those areas of poverty and unemployment, then we need to grow that pool."
Stothert has blamed longtime city consultant Dick Davis and his Davis Companies for that decrease. She declined to renew his contract to provide services to small businesses for the city.
Councilman Gray has defended Davis, and Davis has challenged Stothert's review of his work. Gray and Davis both said increasing the number of businesses certified in the program was not in Davis' contract.
Gray said the city needs Davis, or somebody with similar skills and experience, to help businesses become qualified for city contracts.
The city ordinance makes city departments and the mayor responsible for implementing the program.
City officials said they look for projects to set aside for Tier I businesses but must have at least three bidders for a contract. Often there are not enough qualified companies to submit bids.
The City Council, with the support of then-Councilwoman Stothert, adopted the ordinance in 2009.
Nebraska voters passed a ban on affirmative action in 2008. City leaders created a new program to replace previous city efforts to use a portion of its contracting to build up small and minority and women-owned businesses.
Such measures aim to level the playing field so eligible businesses can compete for city contracts and use the experience and income to grow, hire more workers and build their capacity to do bigger jobs. Ideally that would help low-income neighborhoods and taxpayers by decreasing poverty, unemployment and crime. And more competition for contracts should mean lower prices for the city.
Under the affirmative action ban, the city no longer can take race or gender into account for most city contracts. But the city can give preferences to small businesses in general, and to those in high-poverty, high-unemployment neighborhoods.
That's why the city's SEB ordinance creates different categories of small businesses. Tier I businesses must have offices in neighborhoods where at least 15 percent of the population is below the poverty level. At least 20 percent of their employees must live in such neighborhoods.
Tier II businesses can be located anywhere, and there are no workforce requirements.
The mayor and council cannot routinely review comprehensive, detailed records on the program.
The ordinance requires the Public Works director to give the mayor and council reports twice a year that list all city contracts, with the amount of SEB participation in each project or contract.
But Public Works has submitted only aggregate numbers and percentages in its semiannual reports. Stubbe, originally appointed by Democratic Mayor Mike Fahey, has not submitted any written comments explaining why some projects or contracts did not include any SEB companies, as required in the ordinance.
The World-Herald requested five years' worth of detailed records as described in the ordinance. Stubbe said the department could not put those together. The newspaper narrowed the request to just one year of records, those from 2014, and the city provided those.
Stubbe said he interprets the ordinance to mean he has to submit only aggregated reports, not detailed contract listings. He said he has to submit written comments only if no SEB-certified business is used in a six-month period.
"That hasn't occurred," he said.
Gray, who took the lead in drafting the ordinance, disagreed with Stubbe's interpretation. Gray said producing such reports would make the program more open to scrutiny and the departments more accountable for results.
"Start by adhering to the ordinance," Gray said. "Start by setting goals, benchmarks in writing for the council every year so we can know whether you're hitting them or not."
That said, Gray has not demanded detailed reports on all city contracts, except for information last year about the city sewer overhaul contracts specifically. Asked why he had not insisted on more, he said: "I was waiting to see what they would do."
The ordinance also says that the mayor shall annually "establish an overall goal and sub-goals as necessary for the utilization of small and/or emerging businesses in all city contracts."
Then-Mayor Jim Suttle, a Democrat, set a goal of 14 percent in 2010.
Stothert said she has kept the goal at 14 percent. Asked how she makes that known, she said, "We communicate it."
The mayor said her department heads know what the goal is and have strategies to achieve it. She said her critics on the council probably don't even know that the goal is 14 percent.
Festersen said he had seen no communication from Stothert about setting a goal. Gray said the mayor should make it clear what the goal is, and make clear that it is a priority.
A nationally known economic inclusion expert said it is important to set goals at the top of an agency and to require departments and contractors to demonstrate specifically how they will meet the goal.
"The importance is because you're looking at how you're going to spend dollars," said Gregory Jenifer, president and CEO of New Jersey-based Armand Resource Group Inc.
"And more important, you have to look at every trade and subtrade associated with that contract and break out parts that come up with that number."
Jenifer said it is important to report results to the degree of detail called for in the Omaha ordinance.
"Absolutely, because it becomes a matter of accountability," he said. "People don't do what you expect them to do. They do what you inspect."
Jenifer said in cities that are effective in this arena, mayors or other government officials call in their big general contractors and persuade them to make economic inclusion a priority.
"What is the city willing to do in order to put some kind of programs in place that are supported by the general contractors, or the prime contractors?" Jenifer said.
Gray has tried to play that role, working on plans with Omaha's outside project managers on an inclusion program.
Stothert has launched her own plans. In addition to appointing Danner and taking other steps, Stothert last week pledged to budget an additional $400,000 to job training.
Some contractors said part of the problem is the way the city tries to designate projects for small businesses.
Sometimes the city requires large contractors to parcel out a percentage of projects to SEB program companies. Other times the city sets aside small contracts, or pieces of large projects, and allows only certified SEB companies to bid on them.
It works better when the city breaks them down itself, said Michael Perkins, owner of north Omaha-based Perkins & Perkins Construction. Perkins said he hasn't won any bids since the city scrapped its affirmative action program.
"It's not because I haven't bid. I've bid on a lot of them," he said. That includes seeking subcontracts for sewer overhaul-related concrete work.
Swain Construction has gotten much of that concrete work. Swain owner Greg Armstrong said that's because his company aggressively pursues the work, and completes it well and on time.
It's also hard for a company like Perkins & Perkins to compete with a relatively large company like Swain.
Perkins said it would help if the city set aside more work specifically for very small Tier I contractors. He said he made that suggestion when he met in early April with Danner and a Public Works manager. Perkins said he was encouraged by their approach, and that they asked for more recommendations.
"I believe they're really trying to make it work," Perkins said. "The city is really taking it seriously; they just don't know what to do about it."
Tamara Brunow, owner of Brunow Contracting, said she had given up her Tier I small business status because there was no advantage to it.
She said the city should set aside more contracts for Tier I companies and take steps to ensure small businesses are paid frequently. Cash flow is crucial to very small businesses, she said.
Large firms with prime contracts often pay their subcontractors slowly, Brunow said. Pay can be held up for months while the prime contractors' bills work through the city or while the big contractor and the city are in a dispute.
Kerry Jackson, owner of Jackson's Complete Concrete, said the SEB program works for him.
"If you have the manpower, the equipment, the bonding and the insurance, they'll give you a chance," Jackson said.
If you do a good job, Jackson said, you can get more projects.
"It gives me a chance to work."