Resolution Trust Corp. (RTC) Explained

This is an article from 1992 that I thought did a pretty good job of explaining the RTC (Resolution Trust Corporation), which has received a good deal of attention after an announcement today by Treasury Secretary Hank Paulson sparked a massive rally in the stock market:

In many respects, the sun is setting for the Resolution Trust Corp. (RTC). Its massive task has been to salvage the nation's ailing savings and loan industry, a task it expects to complete by 1996. But for African American-owned businesses, with the capability and desire to compete for the billions in contracting fees, the sun is rising.

Last March, offical clout to ensure that all segments of U.S. business participate in the largest disposition of property and other assets grew. (See "The World's Biggest Fire Sale," June 1991.) The push was given by an impatient Congress and by a new RTC president and CEO. How? The RTC consolidated and expanded its minority outreach program increased cost advantages for minority firms in the bidding process and promulgated new rules to substantially increase the share of minority-awarded business contracts in fields as diverse as accounting and law.

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As of March the RTC had disposed of more than $234.1 billion in assets that belonged the 630 savings and loans. It spent $81.5 billion of the taxpayers' money in the process. This created a bonanza of $1.87 billion in fees awarded in 60,226 service contracts. Though the RTC's authority expires in 1996, between now and then, it is expected to authorize some $15 billion or so in contracting service fees.

These days, minority businesses are in the thick of the action. Nine black companies or joint-venture shares placed among the top 100 RTC contractors receiving fees in excess of $4 million. But minority firms' share of the total was still small as black-owned firms received only $80.2 million in fees of the $1.87 billion total. Black law firms earned only 1% of legal fees generated and Hispani-owned firms took in an even smaller $39.2 million in total fees. Other minority groups trailed further behind.

Why minorities have had a problem getting equal representation is embedded in RTC history. The RTC was created after the passage of the 1989 Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), which aimed to stabilize the struggling thrift industry. The RTC was charged with managing thew real estate and securities of insolvent thrifts. From the beginning, Congress felt that minority participation was important enough to write it into law. As passed, FIRREA required RTC to "prescribe regulations to establish and oversee a minority outreach program...to ensure inclusion, to the maximum extent possible, of minorities and women and entities owned by minorities and women." Yet minority firms were left at the starting gate.

During its first two years, with real estate in a tailspin, the main task of RTC official was getting contracts out before the assets they managed depreciated further. The key to private contracts' participation was RTC registry. Once registered, contractors could get "SOSs" or solicitations of services telling them which properties were up for RTC management, disposition or other services. In most instances large, white-owned firms got the largest contracts. Albert V. Casey, current RTC president and CEO says, "We had to get control of the situation. We thought it would be 50 savings and loans at first and that grew to more than 500. Originally we were just going willy-nilly out there, and there wasn't time and there weren't a lot of minorities registered."

That neglect is reflected in the numbers: In June 1990, there were only 500 registered minority- and women-owned firms. By January 1991, 4,320 minority-owned firms out of 40,577 firms were registered. That year, minority-owned companies were awarded only 7.5% of the contracts, worth $12.4 million. Firms owned by white men were awarded 80.2% of the contracts, followed by firms owned by white women, with 12.3%.

Last September, the General Accounting Office (GAO) completed an investigation clearly stating where responsibility lay: "The RTC got off to a slow start in implanting a minority- and women-owned business program for asset management contracting." The GAO found a persistent pattern of understaffing and underfunding of RTC minority efforts. One year ago, the RTC outreach office at its Washington headquarters consisted of a director and one secretary. The GAO also said minority programs at the RTC were "inconsistent."

Others said they were ignored. Minortiy-owned firms complained they were neither notified when contracts were to be let nor were they contracted by larger corporations that were supposed to be cuscontracting with them. Ralph C. Thomas III, the executive director of the National Association of Minority Contractors says this proves, "the old boy network is still alive."

But hat has begun to change. Under fire from Congress, civil rights groups and the Rainbow Coalition, the RTC has consolidated its various minority programs under one roof: the Minority and Women Outreach and Contracting Programs, headed by an African-American Johnnie B. Booker, who was a Housing and Urban Development deputy assistant secretary of Operations and Management for the office of Fair Housing and Equal Opportunity. Since joining the RTC last November, Booker's Staff has expanded from one professional to eight. And it wasn't long before she heard from her constituency. They told her one thing: "'Give us more contracts!' That was the song we heard," she says with a chuckle. "And we're planning to move very aggressively in that direction."