unbridled growth period, government agencies and municipalities nationwide made sure minorities were part of lucrative bond underwritings. Firms like Bell’s capitalized on this trend, but they would pay a price later for leveraging their future too heavily in munis.
Since those record years, the market has receded and, as interest rates rose, issues have declined. From January through September 1996, the total issuance of debt was only $129 billion. “The amount of municipal financing coming on the market in any given year now is definitely finite,” says Kim N. Wallace, vice president of equities research at Lehman Brothers in Washington, D.C. In the late ’80s early ’90s, competition in the market increased as the larger, more established houses recognized there was still money to be made in municipal finance. “Once the big boys recognized it was worth their while financially,” he explains, “they targeted [municipal bonds], squeezing out new entrants and smaller players,” which generally meant minority- and women-owned firms.
Minority firms also found themselves wing against large corporations for the attention of newly elected black officials who were throwing business their way. “Large companies deftly targeted both their marketing and sales operations to take advantage of the change [on the political landscape],” says Wallace. More people of color were hired and promoted for the specific purpose of wooing their counterparts in the political arena. And they were given superior resources so they could grab a bigger share of the business for the larger majority firms. “This is very much a relationship business,” notes New York State Comptroller H. Carl McCall. “I make decisions based on people with whom I have relationships. I know what do, their track record and how they operate.”
The rising number of black mayors led to many beneficial relationships for minority firms. Former Atlanta Mayor Maynard Jackson and others were instrumental in channeling bond business to minority firms. Jackson in fact, crafted the prototype set aside policy for including minority firms in all city government contracting. But in 1989, this programs came under fire.
In that year many firms that had used set-aside policies to carve out a foothold in the industry were caught blindsided by the Richmond v. J. A. Croson ruling. The courts now challenged the idea that in the interest of fairness, a proportion of all city government contracts should be distributed to minority firms. The croson ruling forced a stricter standard to justify set-aside programs, giving many municipalities an excuse for ending the practice altogether.
The croson decision is just part of a growing backlash against affirmative action. “There’s no longer the legal and public support or commitment there once was for affirmative action,” says McCall. “People in the majority in Congress have made their opposition clear, so there’s no question that it has had an impact.”
For McCall, perhaps the final factor completing the squeeze on minority firms was that municipalities began to face debt limits after issuing so many bonds. Elected officials are now being forced to answer to taxpayers who are opposed to