PHILADELPHIA — For four decades, Philadelphia has set specific goals for awarding a portion of its hundreds of millions of dollars in yearly government contracts to businesses that are owned by women and people of color.

But as of this fall, that practice is no more, a major shift in the city’s diversity initiatives that comes as affirmative action-style programs have faced a national political and legal backlash.

Mayor Cherelle L. Parker’s administration is no longer pursuing a goal of fulfilling 35% of all contracts through what are known as “minority, women, or disabled-owned enterprises,” a benchmark that has been in place in City Hall since 2016. Prior to that, the goal was 25%, set in the early 1980s.

The city also in September quietly ended its practice of assigning participation “ranges” to publicly funded projects, according to a letter from top Parker administration officials to all agency heads that was obtained by The Inquirer. That means contractors are no longer given benchmarks for the amount of dollars that should go to subcontractors and suppliers owned by people of color, women, and people who are disabled.

The new standards are part of a broader dismantling of race- and gender-conscious policy in city procurement, a process that could affect contracts to historically disadvantaged firms worth more than $370 million annually.

Solicitor Renee Garcia, the city’s top lawyer, said in a statement that the change in Philadelphia’s practice comes as new federal legal precedent prohibits the setting of contracting goals based on race and gender, and that the city must ensure public funds “are not used to promote, reinforce or perpetuate discrimination.”

The city, Garcia said, will instead provide incentives to businesses that are considered “small and local,” a standard that has been increasingly adopted in other jurisdictions.

“The goal of the revised program,” she said, “is to create an environment in which all businesses can thrive and contribute to the local economy.”

Nationwide political and legal backlash

Government initiatives to support women and racial minorities, some of which date to the Civil Rights Movement, have faced increasing legal scrutiny in recent years as courts have ruled that some of the programs are unconstitutional, citing the Supreme Court’s 2023 decision to strike down affirmative action in college admissions.

Meanwhile, President Donald Trump’s administration has threatened withholding federal dollars from jurisdictions that have diversity, equity, and inclusion initiatives it believes are illegal, reflecting a priority for the president, who sees the programs as discrimination.

Philadelphia is not alone in reexamining these policies. Leaders in several other major cities — including St. Louis; San Antonio, Texas; and Portland, Ore. — have in the last year eliminated diversity goals in contracting or made their procurement policies race- and gender-neutral.

Parker, a Democrat and the city’s first Black female mayor, has long prioritized creating economic opportunities for minority- and women-owned firms. She has, among other initiatives, established an office dedicated exclusively to minority business success.

But Parker, who took office last year, has also sought to avoid direct confrontation with the Trump administration in an effort to safeguard millions of federal dollars that the city relies on to balance its budget.

Her administration has also been, at times, more risk-averse than her predecessor when facing other serious legal challenges. Earlier this year, Parker successfully led an effort to eliminate a popular tax break for small businesses amid a series of lawsuits that Garcia said put the exemption at risk.

And last month, the administration settled a lawsuit brought by firms — represented by the Trump-aligned America First Legal nonprofit — that claimed language related to workforce diversity in the city’s vendor contracts was illegal.

As part of the settlement, the city agreed to pay $417,000 in attorneys’ fees and clarify that diversity benchmarks in its project agreements are aspirational goals, not mandatory quotas.

A shift to ‘small and local’

The latest adjustments to Philadelphia’s contracting processes could see pushback, including in City Council, where a majority of the city’s 17 legislators are people of color and many have relationships with minority-owned businesses supported by city contracts.

Council President Kenyatta Johnson has for years prioritized ensuring city dollars go to diverse businesses, which has often been a sticking point on major construction projects in need of city approval.

However, Council could itself face pressure to adopt legislative remedies that ensure the city’s contracting rules can withstand legal challenges.

A special committee convened by Johnson last year — which includes members of the Parker administration and representatives from the business community — spent months studying the city’s DEI practices. It is expected to release a report in the coming months recommending the city overhaul its procurement policies.

The committee was scheduled to hold a public hearing on Thursday to discuss its progress. But on Tuesday, the meeting was canceled. Vincent Thompson, a spokesperson for Johnson, said the hearing was postponed “due to availability of the DEI committee members.”

Members of the committee who were reached by The Inquirer declined to comment, citing the forthcoming report.

A draft version of the report, which was obtained by The Inquirer, says the city’s procurement practices are vulnerable to legal challenge because they are not race- and gender-neutral.

Philadelphia, the report says, should prefer firms that are “small and local,” a standard the authors said would help preserve efforts to increase diverse business contracting, even in the shifting legal landscape.

The administration, Garcia said, is already moving in that direction.

“The city is actively working on establishing a new procurement structure that will promote economic opportunity for all businesses,” she said in a statement, “with a focus on providing incentives to attract and retain small and local businesses.”

Courts chip away at diverse contracting

A series of recent court rulings have chipped away at local governments’ ability to set aside contracting dollars for diverse businesses, leading some to adopt the “small and local” model.

The 2023 Supreme Court ruling in a case against Harvard University that struck down race-based admissions was widely seen as likely to have broader impacts, because the court rejected the presumption of social disadvantage based solely on race or gender.

Last year, former President Joe Biden’s administration revamped a federal small-business program that aimed to provide opportunities to racial minorities after judges ruled it unconstitutional. A similar ruling in Kentucky prohibited a Department of Transportation contracting program for disadvantaged firms after white, male contractors brought a lawsuit.

Philadelphia faced its own adverse ruling last year when the U.S. Court of Appeals for the Third Circuit sided with contractors who sued the city over its bidding rules, leading the city to settle with the plaintiffs last month.

The firms — represented by attorneys from America First Legal, which was founded by Trump adviser Stephen Miller — claimed that the city violated the Constitution by forcing bidders to sign agreements that included diverse workforce goals.

That case was not explicitly about awarding contracts to diverse business owners. But the court’s opinion, authored by Judge Paul Matey, cleared the way for contractors to bring claims challenging the city’s policies related to racial and gender equity as potentially in violation of the Constitution’s guarantee of equal protection.

Matey, who was appointed by Trump in his first term, wrote in the opinion that Philadelphia’s agreements mandated a percentage of construction hours went to workers based on race and gender. A policy, he wrote, may be discriminatory if it singles out a group for “different treatment.”

“That is the case here,” Matey wrote.

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