Financial Overhaul Provision to Promote Diversity Hiring in Federal Agencies Stirs Backlash

In this Oct. 28, 2009 file photo, Rep. Maxine Waters, D-Calif. , is seen on Capitol Hill in Washington. (AP)

In the financial overhaul bill that is on the cusp of becoming law, House Democrats have included a largely overlooked provision that would create diversity czars to promote racial and gender hiring in federal agencies -- a move that has sparked concerns about racial quotas, government waste and charges that Democrats are attempting to politicize the Federal Reserve.

The bill would establish an Office of Minority and Women Inclusion at each federal financial services agency to "ensure equal employment opportunity and the racial, ethnic and gender diversity" of the work force and senior management.

The diversity czars would also aim to "increase the participation of minority-owned and women-owned businesses in the programs and contracts" of each agency and conduct "an assessment" of those goals.

Each diversity czar would be a presidential appointee who must be confirmed by the Senate and have power "comparable to that of other senior level staff," the bill says.

In an editorial, The Wall Street Journal accused Rep. Maxine Waters, D-Calif., author of the provision, of trying to politicize the Federal Reserve.

"The Waters provision will also give Congress and the White House a new and powerful lever to influence the operation of the 12 regional Fed banks," the newspaper wrote. "Accusations of racial or gender indifference, much less outright bias, are politically deadly."

"With the threat of such an accusation in their holster, the Waters czars will have enormous clout to influence Fed governance and regulatory decisions, perhaps including monetary policy," the newspaper added.

Waters' office did not respond to a request for comment but the lawmaker vigorously defended the provision in a letter to the editor of The Wall Street Journal, saying the newspaper's critical editorial was "filled with misrepresentations, unsupported conclusions and outright distortions."

"Nothing in the bill mandates lending to minorities or women," she wrote, denying charges that the provision would politicize the Fed or allocate credit by race and gender. "The provision does not even mention lending. The offices will only be responsible for employment, management and business activities of the agencies."

"What this legislation will do is help address an indisputable problem, the lack of diversity in financial services," she said, arguing that studies show the "discrimination that women and minorities face compared to white men of similar educational background and age."

Waters cited the Treasury Department where minorities make up 17.2 percent of employees at senior pay levels and a recent Government Accountability Office report that shows the lack of diversity within the financial services industry has barely improved at the management level from 1993 to 2008.

"The provision is designed to broaden and improve the work force of these agencies and expand opportunities for our nation's small businesses – including minority-and women-owned businesses – to participate in programs and contracts instead of continuing to rely on the same 'old boy' network and handful of Wall Street firms responsible for the crisis in the financial markets."

The provision remained in the legislation during a conference committee between House and Senate negotiators. The House approved the final version of the bill late last month but the Senate delayed its vote until after the July Fourth holiday.

Diana Furchtgott-Roth, an adjunct fellow at the Manhattan Institute and a senior fellow at the Hudson Institute, said the bill should be sent back to conference stripped of this provision, citing concerns about racial quotas and costs.

"The chief concern is that you're moving from a situation where discrimination is prohibited, which is well and good and that is established law, to a situation where there are quotas in the workplace," she told FoxNews.com, contending that the law would extend the provisions to contractors and subcontractors – a situation that could lead to quotas in the private sector. "And those are two very, very different things."

The law would create at least 20 new offices and up to 29 if every Treasury agency is required to create a minority office, she said.

"It would probably cost a million or over" to operate on an annual basis for each office, she said.

Furchtgott-Roth also noted that the Cabinet-level departments all have similar offices in place and questioned why more is needed.

"This is a very serious concern," she said. "We have a deficit of over a trillion dollars. Every American knows that we need to cut the deficit and not only is this a waste of money but it implies that the existing offices we have are a waste of money."