Terry H. Schwadron
Sept. 15, 2023
It was predictable that the Supreme Court thinking behind barring affirmative action considerations in university admissions would not stay on campus.
A federal district court judge in Tennessee has struck down a provision of a federal Small Business Administration program meant to help minority-owned businesses. That ruling — the Justice Department has not said whether it will appeal the judge’s ruling — could adversely other programs that benefit underrepresented groups.
The July 19 ruling by District Judge Clifton L. Corker said the program’s reliance on the presumption that equated race with “social disadvantage” to benefit minority-owned companies was unconstitutional in ways like the affirmative action decision this summer.
The lawsuit behind the ruling was the among the first challenges to bring the issue off-campus and into the business world.
So, as The Washington Post relates, thousands of Black, Latino, and other minority business owners now are scrambling to prove “social disadvantage” in ways that are separate from race.
That SBA program that has helped minority-owned small businesses for about five decades to win federal contracts. The groups were aimed at aiding underrepresented groups including veterans and women.
Obviously, the wider implications in a society that openly bets on winners and losers, just by the numbers of applicants alone, the decision will boost the fortunes of companies owned and operated by white men to a further degree. As with affirmative action on campus, it is just the kind of ruling that claims race-free fairness but that will deepen racial rifts, this time in business.
It’s a values question that we all should be weighing in how we move our country — or not — towards measurable fairness. We’re seeing a rollback of our own solutions to make life more accessible to all.
The SBA 8(a) Program
Under the new guidelines, being Black, Hispanic, Asian, or Native American is no longer enough to automatically qualify as socially disadvantaged. Instead, in a mass email distributed Aug. 22 by SBA officials, business owners were instructed to submit an essay demonstrating that race had hindered their success.
That prompted panic from many small businesses that had benefited in the past, say advocates and those helping to prepare applications. And at the SBA, it has meant adding staff to train on how to review the narratives.
That result seems noteworthy as Republicans in Congress crow loudly about cutting federal employees even to the point of government shutdown and banning all programs meant to encourage racial diversity.
About 4,800 businesses participate in the so-called 8(a) program; nearly 4,000 of them were certified under the presumption of social disadvantage, according to the SBA. In 2020, 8(a) firms were awarded $34 billion in government contracts, according to a Congressional Research Service report.
The challenge to race identification advice came from a Celeste Bennett a white business owner of Ultima Services Corporation that had had administrative and technical support services contracts an agency of the Agriculture Department for 15 years until the SBA started using this 8 (a) program to review contracts. Ultima claimed the Constitution barred racial considerations and filed suit through the Center for Individual Rights, a conservative public interest law firm. Bennett, claimed she was precluded from being awarded a contract under the 8(a) program because she is white.
In his opinion, Judge Corker, a Donald Trump appointee to the bench, cited the Harvard affirmative action case nine times to expand its findings into areas beyond universities. The judge said that the SBA and the USDA failed to establish a “compelling interest” in their use of the presumption, presumably meaning they did not provide enough evidence that it was needed to remedy the effects of past discrimination. Moreover, Corker wrote that the presumption’s reliance on broad racial categories was not “narrowly tailored” to address past discrimination.
The judge cited the Harvard case in reaching both decisions nine times. The Supreme Court ruled this summer that Harvard and the University of North Carolina could not use race as a stated factor in student admission, launching widespread and varied approaches in which students now either file essays about overcoming adversity or just don’t apply.
Not an Isolated Case
Obviously, the challenge against the SBA is neither isolated nor singular. At some point, don’t we need to ask what kind of society we want?
We are seeing a broad legal assault on diversity, equity and inclusion initiatives in universities, government agencies, the military and, increasingly in businesses, particularly in states like Florida that are Republican led.
Edward Blum, the conservative activist behind the college admissions cases, has several pending lawsuits targeting private-sector DEI programs. More than a dozen Republican attorneys general fired off letters warning the nation’s largest companies that explicit racial quotas and preferences in hiring and promotions would invite legal action, the Post reported.
One contracting adviser said advocates are now expecting attacks on the
Transportation Department’s Disadvantaged Business Enterprise program, which dispenses transportation-related construction contracts to minority-owned businesses or the Service-Disabled Veteran-Owned Small Business program, Women-Owned Small Business program, the Small Disadvantaged Business program, and the Historically Underutilized Business Zones program — all whose certifications are key in helping disadvantaged business owners win contracts throughout the federal government.
Obviously, there is no end to this list among other government agencies and the private sector.
To qualify for the 8(a) program, a small business must meet several requirements — including being 51 percent owned by U.S. citizens who are socially and economically disadvantaged. Economic disadvantage is defined as having a personal net worth of $850,000 or less, an adjusted gross income of $400,000 or less and assets totaling $6.5 million or less. Social disadvantage is defined as racial prejudice — or cultural bias — within American society stemming from circumstances beyond an individual’s control, and people of certain races and ethnicities were automatically assumed to be socially disadvantaged.
Those who did not benefit from the presumption of social disadvantage were required to write a narrative citing specific instances in which an objective distinguishing feature negatively impacted a business owner’s advancement in the business world.
In 2019, court documents show Lusa, an earlier Bennet business that acquired Ultima, was awarded two contracts from the Natural Resources Conservation Service worth $3.8 million through a women-owned small-business program. Perhaps Bennett and Ultima could have qualified for the 8 (a) program if she had filed the supporting history detailing difficulties in getting loans. Instead, she sued to challenge her exclusion.