The opinion of the court was delivered by: LOUIS C. BECHTLE
WITH SUPPORTING FINDINGS OF FACT AND CONCLUSIONS OF LAW
This is a facial challenge on constitutional grounds to certain provisions of Chapter 17-500 of the Philadelphia Code ("Chapter 17-500" or "Ordinance"), a City of Philadelphia ("City") ordinance creating preferences, or "set-asides," in City contracting for businesses owned by minorities, women, and handicapped individuals. Presently before the court is the need to determine whether the Ordinance's provision creating a fifteen percent "goal" for black participation in City construction contracting satisfies the strict scrutiny test under the Equal Protection Clause of the Fourteenth Amendment to the Constitution of the United States.
A nine day non-jury trial was held on this issue between May 31, 1994 and June 20, 1994. Based on the evidence admitted at trial, and the court's findings of fact and conclusions of law as set forth below, the court finds that Chapter 17-500's fifteen percent "goal" for black participation in City construction contracting violates the Equal Protection Clause because it is not "narrowly tailored" to a "compelling government interest." The City is hereby permanently enjoined from enforcing Chapter 17-500's racial preference, and the regulations promulgated thereunder, in the award of City construction contracts.
A. Summary of the Ordinance
On November 4, 1982, the Philadelphia City Council enacted Chapter 17-500 for the declared purpose of increasing City contracting opportunities for businesses owned by minorities and women, and increasing the number of minority and female-owned businesses within the City of Philadelphia.
(Joint Ex. 4 at 501-18.) As originally enacted, Chapter 17-500 contained a fifteen percent "goal" for City contract participation by minority-owned business enterprises ("MBEs"), and a ten percent "goal" for City contract participation by woman-owned business enterprises ("WBEs"). Phila. Code § 17-503(1)(a)-(b) (1982). Chapter 17-500 was later amended to expand its coverage to "disadvantaged business enterprises," and to include a two percent "goal" for City contract participation by handicapped-owned business enterprises ("HBEs").
Phila. Code § 17-503(1) (1987). The Ordinance currently applies to all City contracts, whether competitively bid or negotiated, for vending, construction, and personal and professional services. Phila. Code §§ 17-501(6) and 17-503(1).
Chapter 17-500 created an agency known as the Minority Business Enterprise Council ("MBEC") to administer the Ordinance and ensure that its "goals" for minority and female participation are met by both City agencies and prime contractors doing business with the City. Phila. Code § 17-504. Pursuant to § 17-504(2), the MBEC has promulgated regulations for the implementation of Chapter 17-500, and it has certified contractors as eligible to participate in the set-aside program. The MBEC continues to monitor compliance with the Ordinance, and it issues reports to City officials on the effectiveness of the set-aside program.
B. Summary of the Case and Trial
On April 14, 1989, nine incorporated associations of construction contractors ("contractors") brought suit against the City and various City officials (collectively "City"), pursuant to 42 U.S.C. § 1983, challenging the constitutional validity of Chapter 17-500 and the MBEC regulations under the Equal Protection Clause of the Fourteenth Amendment. The contractors allege, among other things, that the City's use of race-based measures to promote City contracting opportunities for minorities violates the Fourteenth Amendment's guarantee of equal treatment to all persons.
Under the Fourteenth Amendment's guarantee of equal protection of the laws to all persons, classifications based on race are highly suspect. City of Richmond v. J.A. Croson Co., 488 U.S. 469, 493-98, 102 L. Ed. 2d 854, 109 S. Ct. 706 (1989). In certain circumstances, local governments have the authority to eradicate the effects of racial discrimination within their legislative jurisdiction; however, this authority must be exercised within the constraints of the Fourteenth Amendment. Croson, 488 U.S. at 491-93. A local government may implement race-conscious legislation if the legislation is necessary to redress clear instances of past discrimination and it is narrowly tailored to achieve this goal. Id. As the Supreme Court stated in Croson :
because racial characteristics so seldom provide a relevant basis for disparate treatment, and because classifications based on race are potentially so harmful to the entire body politic, it is especially important that the reasons for any such classification be clearly identified and unquestionably legitimate.
Id. at 505 (citation omitted). Moreover, even if the local government specifically identifies the discrimination that it seeks to remedy, narrowly drawn racial classifications may only be used as a last resort. Id. at 519.
Once a challenge to race-conscious legislation has been raised, that party bears the ultimate burden of proving that the legislation is unconstitutional. Contractors Ass'n of Eastern Pennsylvania, Inc. v. Philadelphia, 6 F.3d 990, 1005 (3d Cir. 1993). The local government, in resisting such a challenge, must show a "strong basis in evidence" to support its racial classifications. Croson, 488 U.S. at 492, 499-500. The proponent of the legislation must demonstrate that there were actual instances of past discrimination; that the MBE plan is necessary to remedy the discrimination; and that the plan is narrowly tailored to that goal. Id. at 491-93. The legislation then must be subjected to searching judicial inquiry under the strict scrutiny standard to determine whether the legislation's race-based measures are "benign" or "remedial," or whether the legislation's racial classifications "are in fact motivated by illegitimate notions of racial inferiority or simple racial politics." Id. at 493. As the Supreme Court stated in Croson :
the purpose of strict scrutiny is to "smoke out" illegitimate uses of race by assuring that the legislative body is pursuing a goal important enough to warrant use of a highly suspect tool. The test also ensures that the means chosen "fit" this compelling goal so closely that there is little or no possibility that the motive for the classification was illegitimate racial prejudice or stereotype.
This court has twice granted summary judgment in favor of the plaintiffs because the City failed to produce, in a summary judgment format, sufficient evidence of past discrimination in the Philadelphia construction industry to satisfy the strict scrutiny test. See Contractors Ass'n of Eastern Pennsylvania, Inc. v. Philadelphia, 735 F. Supp. 1274 (E.D. Pa. 1990); Contractors Ass'n of Eastern Pennsylvania, Inc. v. Philadelphia, 1992 U.S. Dist. LEXIS 14416, Civ. No. 89-2737, 1992 WL 245851 (E.D. Pa. Sept. 22, 1992).
On appeal, the Third Circuit agreed with this court's finding that the anecdotal and statistical evidence considered by the Philadelphia City Council in 1982 did not provide a sufficient evidentiary basis for Chapter 17-500 to withstand strict scrutiny. Contractors Ass'n of Eastern Pennsylvania, Inc. v. Philadelphia, 6 F.3d 990, 1002-03 (3d Cir. 1993). The Third Circuit, however, found that the City's post-enactment statistical evidence -- specifically, a "disparity index" calculated by the City's expert witness, Dr. Andrew F. Brimmer ("Dr. Brimmer") -- established a prima facie case of racial discrimination in the award of City construction contracts that was sufficient for the City to withstand summary judgment. Contractors, 6 F.3d at 1007. The Third Circuit held:
the City's statistical evidence has created an inference of discrimination which the Contractors would have to rebut at trial either by proving a "neutral explanation" for the disparity, "showing the statistics are flawed, ... demonstrating that the disparities shown by the statistics are not significant or actionable, ... or presenting contrasting statistical data."
Id. (quoting Coral Constr. Co. v. King County, 941 F.2d 910, 921 (9th Cir. 1991), cert. denied, 502 U.S. 1033, 112 S. Ct. 875, 116 L. Ed. 2d 780 (1992)). The Third Circuit remanded the case to this court for trial to determine whether Chapter 17-500's fifteen percent "goal" for black participation in City construction contracting is justified by a "compelling government interest," and, if so, whether it is "narrowly tailored" to remedy specifically identified instances of past discrimination. Contractors, 6 F.3d at 1012.
During the trial, the contractors presented the testimony of two witnesses, and over 100 exhibits, to demonstrate that there is no compelling government interest supporting the Ordinance in that discrimination did not exist in the Philadelphia construction industry before the enactment of Chapter 17-500, or since, and Chapter 17-500's racial preference nevertheless denies City contracting opportunities to non-minority contractors solely on the basis of race. In accordance with the articulation by the Third Circuit of the issues to be addressed on remand, the contractors presented the testimony of Dr. George R. LaNoue ("Dr. LaNoue") to demonstrate that Dr. Brimmer's disparity study is scientifically and methodologically flawed. The contractors also presented the testimony of John Smith ("Smith"), General Manager of the Contractors Association of Eastern Pennsylvania, Inc. ("CAEP") and former member of the MBEC, to support their position that racial discrimination did not exist in the Philadelphia construction industry, and that non-minority contractors have been denied the opportunity to participate in a certain percentage of City construction contracts solely because of their race.
In response to the contractors' proof, the City offered the testimony of Dr. Brimmer, and various proponents of the set-aside legislation, to support the City's position that Chapter 17-500's fifteen percent "goal" for minorities is nondiscriminatory because the City had a "compelling government interest" in remedying the effects of past racial discrimination in the Philadelphia construction industry, and that Chapter 17-500 is "narrowly tailored" to achieve this goal. In addition, intervening defendant, United Minority Enterprise Associates, Inc. ("UMEA"), presented the testimony of two minority contractors to demonstrate the positive effect that Chapter 17-500 has had on the Philadelphia construction industry.
After carefully considering all of the evidence submitted at trial, as well as the submissions of the parties in support of their respective positions, the court makes the following findings of fact and conclusions of law.
A. The Parties, Jurisdiction and Venue
1. Plaintiffs, CAEP; General Building Contractors Association, Inc. ("GBCA"); Employing Bricklayers Association of Delaware Valley, Inc. ("EBA"); and Subcontractors Association of Delaware Valley, Inc. ("SADV"); are four incorporated associations of construction contractors located in the Philadelphia Standard Metropolitan Statistical Area ("Philadelphia SMSA").
The individual members of the contractors associations have participated in the past, and continue to participate, as general contractors or subcontractors on City public works projects.
2. Defendant, the City of Philadelphia, is a city of the first class organized and operated in accordance with Title 53, Chapter 44, of the Pennsylvania Statutes Annotated, and the Philadelphia Home Rule Charter.
3. Defendant Elizabeth Reveal is a former Director of Finance for the City. As Director of Finance, she was responsible for the administration of the City Procurement Department, including the administration of the MBEC.
4. Defendant Curtis Jones, Jr. is a former Director of the MBEC.
5. Intervening defendant UMEA is an organization which represents the interests of minority-owned businesses in the Philadelphia area.
6. The court has subject matter jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1343(a)(3) and (4).
7. Venue is proper pursuant to 28 U.S.C. § 1391(b).
B. The Plaintiffs Have Demonstrated that Non-Minority Contractors Have Been Denied City Construction Contracts on the Basis of Race
9. Members of the CAEP perform a variety of "heavy and highway" construction projects, including the building of bridges, streets and highways, utility plants, water plants and railroads. (Smith, Tr. 5/31/94 at 31-33.) Most of these projects are let by public bodies, including the City of Philadelphia. (Id. at 33-34.)
10. From the 1970s until today, 85 to 90 percent of CAEP members have performed between 30 and 100 percent of the public works projects awarded in the five county Philadelphia area, which is included in the Philadelphia SMSA.
(Id. at 35-38.) In 1982, CAEP members performed 80 percent of the public works projects in the five county Philadelphia area. (Id. at 38.)
11. In the late 1970s, CAEP members would submit up to 100 bids a year to the City for public works projects. (Id. at 60.) Much of this work was performed by the contractors' own work forces, an individual contractor usually would not subcontract a portion of a job unless special skills were required to complete that portion. (Id. at 77-79.)
12. With the passage of Chapter 17-500 in 1982, non-minority construction contractors were immediately denied the opportunity to compete for fifteen percent of City contract dollars solely on the basis of race. The contractors have proven that they were able and ready to bid on this protected segment of City construction contracts but could not do so for failure to meet Chapter 17-500's race-based participation requirement.
13. Based on the evidence of record, the contractors have established a prima facie case of denial of equal protection because the City, under Chapter 17-500, uses a race-based classification as the basis for the award of City construction contracts.
C. The City Has Not Demonstrated a "Compelling Government Interest" to Justify Chapter 17-500's Racial Preference in Construction Contracts
15. During the course of this litigation, the City retained Dr. Brimmer to determine, among other things, whether black contractors were denied their proportionate share of City construction contracts because of racial discrimination.
(Defs.' Ex. 6 at P 11.) Dr. Brimmer purportedly examined statistical, historical and anecdotal evidence relating to participation of MBEs in the construction industry in the Philadelphia metropolitan area, both in the public and private sectors. (Id.) Dr. Brimmer's goal was to determine whether MBEs have suffered disparate treatment in bidding and awards for construction contracts let by the City, or by private owners, and, if so, to appraise whether such statistical disparities reflected past or present discrimination. (Id.)
16. Dr. Brimmer's "disparity study" entailed a review of the following information: (1) the federal government's 1982 Census of Construction Industries, including the Philadelphia construction industry; (2) a directory and one-page summary of MBEs in the Philadelphia area in 1982, prepared by the City (the "Pre-MBEC Directory"); and (3) a report that the City submitted to the U.S. Congress, House of Representatives, Committee on Small Business, in March 1982, which contained the total dollar value of City-financed prime contracts awarded to minorities in fiscal years 1979, 1980 and 1981. (Id. at P 14.)
17. Based solely on his review of the foregoing information, Dr. Brimmer concluded:
We have found a substantial statistical disparity in the participation of MBEs in the City of Philadelphia Public Works contracts for fiscal years 1979 to 1981, when compared to their availability in that market, from which we conclude that the disparity is attributable to racial discrimination.
18. Dr. Brimmer's conclusion that the statistical disparity is attributable to racial discrimination is based on his application of a "disparity index." (Id. at P 15.) Dr. Brimmer calculated this "disparity index" by "dividing the percentage participation in dollars of minority groups in the public works contracts awarded by the City of Philadelphia by their percentage availability or composition in the 'population' of Philadelphia area construction firms and multiplying the result by 100." (Id.)
19. According to Dr. Brimmer:
As participation approaches availability, the disparity index approaches 100, and therefore fully equitable participation would achieve an index of 100, whereas complete exclusion would produce a score of 0. Thus, the nearer the measure is to 0 or the lower the value of the disparity index, the greater the extent of racial disparity and the stronger the inference of discrimination. An index of 0 demonstrates discriminatory exclusion.
21. Dr. Brimmer measured the availability of minority contractors in the Philadelphia metropolitan area in 1982, or the denominator of his disparity equation, by dividing the City-supplied figure of 195 available MBEs in the Philadelphia SMSA in 1982, by the federal census figure of 8050 construction firms with employees in the Philadelphia SMSA at that time. (Id. at P 19.) This calculation yielded an "availability rate" of 2.4%. (Id.)
22. Dr. Brimmer calculated his "disparity index" by dividing the participation rate (0.1%) by the availability rate (2.4%), and multiplying that value (0.04) by 100. (Id. at P 20.) This calculation yielded a disparity index of 4, from which Dr. Brimmer concluded "a disparity index of 4 produces a strong inference of racial discrimination because of its proximity to 0 which represents total exclusion." (Id. at P 21.)
23. Because no public works contracts were awarded to MBEs in fiscal year 1981, Dr. Brimmer calculated a disparity index of 0 for that year. (Id. at P 24.) Dr. Brimmer concluded "a disparity index of 0 represents the purest indicator of discriminatory exclusion." (Id.)
24. Dr. Brimmer next examined the proportion of MBE participation in private contracting after the enactment of Chapter 17-500. Based on Dr. Brimmer's review of data compiled by the City's attorneys regarding the amount of MBE participation in privately-funded projects from 1982 through 1987, and the Procurement Department's annual reports of MBE participation in the set-aside program during fiscal years 1985 through 1992, Dr. Brimmer concluded "MBEs . . . had a disproportionately low participation rate in the private sector construction market and this disparate participation demonstrates racial . . . discrimination." (Id. at P 31.)
25. Because of insufficient data, Dr. Brimmer was unable to calculate a complete disparity index for MBE participation in the private sector construction market. (Id. at P 32.) Dr. Brimmer, however, calculated a MBE and WBE participation rate of 2.1% based on information obtained from the results of a mail-in survey of Philadelphia area contractors. (Id.) Based on this calculation, and its comparison to much higher MBE and WBE participation rates in public works contracts during fiscal years 1985 through 1989, Dr. Brimmer concluded "the low participation rate of 2.1 in the private contracting sphere during 1982 through 1987 demonstrates disparate treatment, and we can identify no other reason for such disparate treatment but racial and gender discrimination."
(Id. at P 37.)
26. Dr. Brimmer next compared the membership requirements of the four contractors' associations that are parties to this lawsuit to a City official's tabulation of the number of MBEs who are members of these organizations, and determined that MBEs had a disproportionately low statistical representation in these organizations which could only be explained by racial discrimination. (Id. at P 38.) Without examining any other evidence, Dr. Brimmer concluded "these statistics demonstrate that the associations either totally excluded MBEs . . . or limited their participation to token levels." (Id. at P 39.)
28. Finally, Dr. Brimmer concluded that Chapter 17-500's fifteen percent set-aside for black-owned construction companies is narrowly tailored because it provides an incentive for black contractors to "respond vigorously" to cure racial disparities, and because it reflects the need to take into account waivers and exemptions granted ...