Board splits on new small-business preference; SBA LBE provisions sent for further review

The San Francisco Board of Supervisors on Tuesday approved changes to the city's Local Business Enterprise (LBE) contracting rules but removed and set aside the portion that would create a new "SBA LBE" category offering a 2% bid preference to certain small-but-not-micro local firms.

The change to the administrative code that would create a third preference category passed in part: the ordinance's provisions other than the SBA LBE section were approved in a roll call vote, 10-0. Supervisors then voted, 7-3, to sever and continue separate consideration of the SBA LBE provisions so the Land Use Committee and sponsors can take additional input from small businesses and the Human Rights Commission.

Why it matters: The ordinance would keep the existing 10% bid preference for micro and small LBEs and add a secondary 2% preference for a proposed SBA LBE category that would apply only if micro or small LBEs do not win a contract. Supporters say the new category is intended to keep more city contracts in San Francisco during a weak economy. Opponents, including small-business advocates and some supervisors, warned the new category could create a "new universe" of beneficiaries that might divert attention and scarce enforcement resources away from the city's smallest, often minority- and women-owned firms.

Supervisor David Campos, who sought the severance, said he had received "a number of calls from businesses in my district" and that "the concern is that you're creating a new constituency and in the process creating a new universe, and a new universe that could negatively impact small businesses, many of them minority owned, women owned." Campos asked the board to remove the SBA LBE section from immediate final action so it can be examined further in committee.

Board President David Chiu, who sponsored the legislation, described the SBA category as a response to repeated committee testimony that local firms were failing to win some contracts. Chiu said he originally proposed the SBA category in March and that the version before the board included changes made after three full committee hearings and public meetings. "We actually had full, three full hearings on this," Chiu said. "...Rather than create direct competition with a 2% bid preference for an SBA LBE category and the 10% bid preference for micros and small LBEs, the current legislation states that nothing changes for small LBEs and micro LBEs. They have the 10% bid preference. It's only in the instance in which the small and micro LBEs lose that the SBA category then kicks in."

Chiu also said the Human Rights Commission (HRC) would provide data on contract winners every three months and that he was willing to revisit the ordinance in six or 12 months if monitoring showed negative effects.

Several business-advocacy groups that signed a Jan. 20 letter to supervisors echoed Campos's concerns. The coalition, which includes associations that represent African American, Asian American and Hispanic contractors, said HRC is already "understaffed" and that a new preference category could shift HRC's enforcement focus away from micro LBEs, which HRC data presented in committee showed make up nearly 90% of currently certified LBEs.

Supervisor Bevan Dufty asked when the SBA idea first emerged; Chiu replied it had been under discussion for nearly a year. Supervisor John Avalos and others urged colleagues to allow more time for outreach; Avalos proposed a short continuance to give sponsors and worried businesses another chance to meet, an approach that at one point led to several procedural motions and roll-call votes before the board settled on severing the SBA provisions and approving the remainder of the ordinance.

The measures approved today will leave intact the current 10% preference for micro and small LBEs and add the conditional SBA LBE option in the ordinance text, but the board will not finalize the SBA LBE provisions until further hearings and technical cleanup are completed.

What happens next: The SBA LBE provisions were severed and will return for additional committee consideration and technical edits; sponsors said they will coordinate outreach to small businesses and the Human Rights Commission to address implementation and oversight questions. The HRC will report quarterly on contract awards under the revised rules.

Votes at a glance: The ordinance's remaining (non-SBA) provisions passed by roll call, 10-0. The motion to sever and separately continue consideration of the SBA LBE section passed by roll call, 7-3. The board recorded other procedural votes while debating possible dates and committee referrals.

Community context: Advocates for micro LBEs and minority- and women-owned firms urged the board to ensure that any new preference does not reduce the 10% protection smaller firms already receive. Sponsors argued the change aims to keep work local during a weak market.

Meeting chronology: The item was read into the record early in the meeting and discussed at length after members removed it from the consent calendar. The severance and subsequent votes were completed before the board moved on to other calendar items.