The state of Massachusetts made an unusual admission last month: When it announces its annual figures in contracting with minority-owned businesses, the majority of that spending does not actually go to "businesses" — or, in fact, any entity "owned" by anybody.
Many states that set goals to increase their rate of spending with minority-owned businesses specifically exclude nonprofit organizations from that process, only counting for-profit enterprises owned by Blacks, Hispanics, Asians and other racial and ethnic minorities.
But Massachusetts is an outlier, certifying minority-led nonprofits as minority business enterprises and then crediting expenditures with these organizations in its own targets for contracting with minority suppliers.
There is no national data that tracks how individual states define a minority supplier, but GBH News surveyed more than a dozen other states and found just one — Connecticut — with a similar rule for including nonprofits in its spending totals.
Linda Bilmes, a senior lecturer in public policy and public finance at Harvard’s Kennedy School of Government, said the criteria used in Massachusetts is unusual and creates “misleading” data.
“If they are looking at the data that says the amount of state contracting to minority owned businesses is ‘X,’ it would be a reasonable assumption to think that those are for-profit businesses,” she said. “And if they are not, then really as a decisionmaker, you’re not getting the right data.”
A 52-page report released by the Massachusetts Supplier Diversity Office last month said the state exceeded its goal of transacting 8% of its discretionary spending with minority-owned enterprises.
Midway through the report, a breakdown of spending categories makes clear that more than half of that spending, $204 million, went to minority nonprofits — that is, nonprofits whose board of directors are more than 51% people of color. More than 40 minority-led nonprofts are listed. The three nonprofits getting the most in contract and grant funds from the state are BAMSI (Brockton Area Multi-Services, Inc), Central Boston Elder Services and Springfield-based Gandara Mental Health Center.
The State Office of Administration and Finance, which ultimately oversees the Supplier Diversity Office, said the policy of counting such nonprofits goes back decades, but this is the first year that the office broke out nonprofit and private business spending.
Bill McAvoy, executive director of the Supplier Diversity Office, said in an emailed statement that his agency’s policy acts an incentive for nonprofits to diversify membership on their boards.
“Nonprofit organizations are vital components of the Massachusetts economy that employ and serve the needs of Massachusetts residents,” McAvoy said, adding that contracting with these organizations helps address wealth gaps in communities they serve.
But the state is not specifically measuring whether its spending with minority-led nonprofits is narrowing the wealth gap, according to the Administration and Finance Office.
"Nonprofits are not directly in the business of creating wealth for their principals."Fred McKinney
Board members for nonprofit organizations serve as unpaid volunteers, and may not have people of color working in their highest-paid jobs, unlike minority-owned businesses.
Bilmes is skeptical about the correlation between nonprofit spending and wealth creation. She said that, while there is clear evidence that links public spending with small businesses to job creation and wealth-building in minority communities, there is not similar evidence that state money spent with minority-led nonprofits achieves those goals.
The state’s policy of including nonprofits in its spending totals is outdated, she added, and possibly created at a time when there were few minority-owned businesses available to bid on state contracts.
Census data shows that Blacks and Hispanics own more than 3% of the businesses in the state that have employees. When Boston commissioned a disparity study to analyze how much it spent with diverse businesses, the consultants did not count any city spending with nonprofits in its 2020 analysis.
Priya Lane, who runs small business development projects at Lawyers for Civil Rights in Boston, criticized the state’s policy.
“It’s disingenuous to say that that counts as money going to minority-owned small businesses. The purpose of making sure that we have healthy procurement dollars going toward MBEs [minority business enterprises] is to make sure that we’re building wealth in communities of color,” she said. “Putting this money in nonprofits is commendable but is not doing that.”
The recent state report showed that, while the state spent just over $300 million in direct contracts with minority enterprises, Black-owned firms were awarded just $10.8 million worth of work and Hispanic-owned firms saw $11.5 million in contracts. The state also cited an additional $123 million in indirect spending on minority-owned businesses and minority-led nonprofits. Without indirect and nonprofit spending, Massachusetts spent just 2% of its 2020 funds with minority-owned businesses.
Fred McKinney, who formerly served as CEO of the Greater New England Minority Supplier Development Council, told GBH News that the state should not lump its spending with nonprofits into its tally of spending with minority-owned enterprises.
“Nonprofits are not directly in the business of creating wealth for their principals,” he said. “There is a distinction between minority businesses that are for profit and nonprofits that have a minority controlling board.”
GBH News producer Hannah Reale contributed reporting.
