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Headline:

State Lax in Enforcing Law Meant to Track, Support Minority-owned Businesses

Deck:

Illinois three years ago began requiring firms getting tax breaks through a state jobs program to report how much they spent with minority- and women-owned vendors. But it has turned into little more than a bureaucratic paper shuffle that collects little useful information.

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In an effort to promote diverse businesses, Illinois three years ago passed a law that required companies receiving state tax breaks to report how much work they did with minority- and women-owned vendors.

But since the law went into effect, 119 companies that had more than $150 million shaved from their tax bills have not submitted any such reports, a Better Government Association examination has found. And of the 61 firms that did file the required reports, nearly three-quarters reported none of the data the law was intended to gather.

The problems with the state’s largest job incentive program are in large part due to the administrations of both Illinois Gov. J.B. Pritzker, a Democrat, and his Republican predecessor, Bruce Rauner, failing to enforce the law, according to the sponsors of the legislation.

Both administrations allowed the tax breaks to continue even after companies failed to submit the forms. For those firms that did submit reports, the administrations interpreted the law to mean the companies only had to file paperwork with the state even if the forms were mostly blank of critical information.

The resulting lack of any significant data intended to detail how much major multinational companies seeking taxpayer help are spending on minority- and women-owned vendors has angered both legislative sponsors. Following BGA inquiries, they said they will call for tougher actions by the Illinois Department of Commerce and Economic Opportunity, the state agency that oversees the program.

“We’re asking the enforcement body, which is the Department of Commerce, to tell these companies, ‘If you’re filing these reports, you should be filing them with data,’” said state Rep. Will Davis, a Democrat from suburban Homewood and co-sponsor of the changes to the state’s Economic Development for a Growing Economy, or EDGE, jobs program. “That’s the expectation.”

Illinois Sen. Cristina Castro, a Democrat from Elgin who sponsored the Senate version of the bill, said the language in the law is clear, and she is disappointed it has been interpreted so favorably to companies seeking taxpayer assistance.

“We’re giving you state tax dollars. Where are you trying to expand the diversity when it comes to minority-owned spending?” asked Castro. “It’s terrible.”

The law states companies “shall … submit to DCEO an annual report containing the information” on “actual spending for female-owned, minority-owned, veteran-owned, and small business enterprises.”

Lauren Huffman, a spokeswoman for DCEO, said the agency has interpreted the law to exclude, or grandfather, any company that received tax breaks prior to the passage of the 2017 measure. She said the law also doesn’t mandate companies collect minority data they don’t already collect.

“We will continue to work with EDGE companies to expand compliance with the 2017 law,” Huffman said in an emailed statement, “and look forward to working with the General Assembly to determine where changes could be made to the current statute and to enhance diversity reporting by Illinois companies and their contractors.”

A spokesman for Pritzker declined to answer questions about the state’s failure to collect the data, offering only a statement about how the governor is “deeply committed” to diversity in state contracts.

The reporting requirement was intended to jumpstart a more widespread trend to include minority- and women-owned businesses and increase sensitivity to fairness and inherent bias in a typically insular corporate world. Experts say collecting data on the backgrounds of suppliers is an incremental first step in the right direction.

“If you benefit from the state in some kind of direct way, tell us how you’re doing with minority participation,” said Davis, the House sponsor. “If you’re not going to comply, then you shouldn’t benefit from this state resource.”

A dismal record

Illinois puts the total value of corporate tax credits at $1.7 billion since 1999, when lawmakers created the EDGE program intended to encourage job creation. State officials say EDGE has saved or created more than 80,000 Illinois jobs.

But the long-troubled EDGE program has come under fire for its lack of oversight and failure to deliver many of the jobs that companies promised to create or retain in exchange for tax credits. A state audit of EDGE published this summer raised myriad management issues, including missing documents, lack of internal controls and procedures, and too many staff vacancies.

The state’s failure to collect vendor diversity data from companies receiving large tax breaks comes as minority-owned businesses nationwide have shut down at a disproportionately high rate amid the COVID-19 pandemic.

“When you’re giving out tax breaks, it represents everyone’s taxes,” said Kathey Porter, former director of small business and vendor diversity at the University of Florida. “To take tax money from everybody but only certain people or few people get to benefit financially, it’s just so egregious that administrators would allow this to occur. It’s just such a failure on their part.”

Companies large and small — from corner grocery stores to Big Pharma to beer manufacturers — can apply to have state income taxes slashed in half or more on the promise they create or retain jobs in the state.

A BGA review of state records shows that of the 61 companies that filed the required reports, 41 reported no spending with diverse vendors. Of those 41 firms, 21 reported they don’t collect data on the backgrounds of their suppliers, and the other 20 provided no reason for the lack of data, records show.

In addition to the reporting requirements, lawmakers in 2017 also increased tax credits for projects located in underserved and poverty-stricken areas by offering tax credits for businesses in those areas of up to 75% instead of the usual 50%. Even so, only 14% of the tax credits awarded since have gone to companies in those communities, records show.

Two companies among the largest tax break recipients — grocery giant Aldi and the credit reporting agency TransUnion — have both filed the required reports but did not provide any data on their spending with diverse vendors.

“Aldi does not track the diversity of its vendors as Aldi provides equal opportunities to all businesses and vendors,” the company wrote in reports submitted to DCEO in both 2018 and 2019.

Aldi received a tax credit of more than $1.8 million from the state in 2018 and has received an additional $1.5 million in tax credits since 2015, when the company signed an EDGE agreement pledging to add 100 warehouse and administrative jobs as it expanded its footprint in the western suburbs, according to state records.

The company did not claim a tax credit last year, records show.

TransUnion, one of the country's largest credit reporting agencies, also reported spending 0% of its total expenditures on diverse suppliers after signing an EDGE agreement related to the expansion of its headquarters in the West Loop.

“TransUnion does not have a formal supplier diversity program and does not presently track supplier diversity statistics,” the company wrote in its 2018 and 2019 vendor diversity reports. “While this information is currently unavailable, the company hopes to begin tracking these statistics in the future.”

The company received a tax credit of nearly $1.6 million in 2019.

Officials at TransUnion and Aldi did not return messages.

Chicago-based Hireology, a popular new hiring platform, told the BGA it hopes to soon start collecting data on its vendor diversity.

“As a small business, we do not currently track the diversity status of our vendors but have plans to do so in the future as we continue to grow,” said Katie Fairchild, vice president of marketing, “and are having the necessary internal conversations to further these efforts.”

“We believe that supporting minority-owned, women-owned, and veteran-owned suppliers is critical, now more than ever,” she said in her emailed statement. She also said most of the company’s vendors have established diversity programs.

In its 2019 vendor diversity report, the company said collecting background information about its vendors “is overly burdensome, too costly, and irrelevant to Hireology’s business functions.”

Experts and advocates interviewed called that assertion outrageous.

“That’s so egregious and so arrogant that it's unbelievable,” said Porter, a national expert on supplier diversity who often consults with government agencies on the topic. “It’s hard to believe that businesses in this day and time, they don’t see the value of having this strategy. If nobody is saying anything about it and it hasn’t impacted their business, they’re not going to do anything.”

Beth Doria, executive director of the Chicago-based Federation of Women Contractors, said companies eligible for EDGE tax credits have had several years to start tracking the diversity status of vendors.

"How can they still say, ‘We still don’t have this data?’ I’m not buying it,” said Doria, whose organization lobbied for the vendor reporting requirement. “We're just asking them to report it. If it's zero, fine. But it's not really a legitimate excuse to say, ‘We can't ask them to divulge those numbers.’”

Doria, who previously served as the state's women's business advocate for the agency that eventually became DCEO, said these types of mandates are often what open locked doors for women and minority contractors.

“One of the struggles that particularly women and minority contractors face is they tend to only be utilized on public projects that demand that they have a component for (minority) participation,” she said. “When we do these projects, they’re very happy with our work, our numbers are competitive. But they only will ask us to bid on this public work where a goal is assigned.”

It has worked before

Although the EDGE requirement does not mandate spending with diverse vendors, history shows that getting companies to report the data is a first step in changing how — and with whom — they do business.

In 2014, the state passed similar requirements for the state’s utility companies, such as Commonwealth Edison and Ameren Illinois. According to advocates, those requirements came after years of broken promises on vendor diversity.

Since the law passed, though, Illinois utilities have reported significant increases on spending with minority-, women- and veteran-owned businesses.

ComEd has nearly doubled its spending with diverse vendors from 23% of total expenditures in 2012 to 41% in 2019, for a total of $738 million last year, according to self-reported data filed with the Illinois Commerce Commission.

Ameren Illinois reported spending just more than 12% of total expenditures with diverse vendors in 2014, when the reporting requirement took effect. Last year, the company reported spending nearly 26% on diverse vendors.

Jorge Perez, executive director of the Chicago-based Hispanic American Construction Industry Association, lauds the utility giants for making real commitments to hiring diverse suppliers, as reflected in the data. Perez said one of his member companies has grown four- or five-fold directly due to contracts with ComEd. Another secured more than $50 million in contracts with Exelon, ComEd's parent company, he said.

“The whole tone of it changed,” he said. “We’ve gone from, ‘We don’t need to deal with you because we’re regulated nationally’ to ‘here’s our procurement person.’”

‘A little bit more aggressive’

Davis and other lawmakers frustrated about DCEO’s sputtering response to the 2017 requirements said they are considering more legislation to kick-start the effort.

State Rep. Emanuel “Chris” Welch, a Democrat from west suburban Hillside, last month introduced a measure to create an Office of Diversity and Economic Inclusion within DCEO, require the agency to host “matchmaking workshops” for EDGE recipients and diverse vendors, and demand companies getting tax credits to report on their own workforce diversity in addition to their vendors.

“I think in this watershed moment that we are in history, this is the time now more than ever that we should be given fair contracting opportunities,” Welch said during a virtual press conference in August. “If you want to see improvement in Black and Brown communities, you have to invest in our communities.”

Meanwhile, Davis said he is considering filing legislation that would strengthen current law to require companies receiving EDGE tax credits to spend certain thresholds on diverse vendors rather than simply report spending levels.

“It’s not that we want to be that heavy-handed,” he said. “We’re hoping that these corporations will simply do the right thing. What the current situation has pushed us into is we need to be a little bit more aggressive.”

Castro agreed, saying the state needs to start ensuring that companies “put their money where their mouth is.”

“These companies don’t feel the need to change,” she said. “As we’re discussing these things, especially as we’re talking about equity, we really should hold folks’ feet to the fire, especially when we’re giving them tax credits.”

This story was produced by the Better Government Association, a nonprofit news organization based in Chicago.

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Image icon Download New_Crop_EDGE.jpg (182.86 KB)In 2017, then-Gov. Bruce Rauner signed into law a requirement that companies receiving certain state tax breaks begin reporting how much work they did with minority- and women-owned vendors. (Screen grab/State of Illinois)

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