DOT has released Official FAQs on DBE Program Regulations. These questions and answers provide guidance and information for compliance with the provisions under 49 CFR part 26. Like all guidance material, these questions and answers are not, in themselves, legally binding or mandatory, and do not constitute regulations.
If the owner of a DBE or ACDBE certified firm or applicant firm has a personal net worth of less than $1,320,000, does that necessarily mean that the recipient must regard the owner as being economically disadvantaged? Section 26.67(b)(2)
- A person cannot be regarded as economically disadvantaged if he or she exceeds the $1,320,000 personal net worth (PNW) cap. However, there may be some cases in which an individual whose PNW is less than $1,320,000 may properly be regarded as not being economically disadvantaged.
- The legal and policy rationale behind the PNW provision of the rule is that a program designed to assist socially and economically disadvantaged individuals should not include people who can reasonably be regarded as having accumulated wealth too substantial to need the program’s assistance.
- Consequently, in determining whether an individual is economically disadvantaged, a recipient is entitled to look not only at the individual’s PNW but also at his or her overall economic situation to make a reasonable determination of whether the individual is fairly regarded as being economically disadvantaged.
- Consistent with Small Business Administration practice in the 8(a) program, it is appropriate for recipients to review the total fair market value of the individual’s assets and determine if that level appears to be substantial and indicates an ability to accumulate substantial wealth.
- For example, an individual with very high assets and significant liabilities may, in accounting terms, have a PNW of less than $1,320,000. However, the person’s assets (e.g., a very expensive house, a yacht, extensive real or personal property holdings) may lead to a conclusion that he or she is not economically disadvantaged. The recipient can rebut the individual’s presumption of economic disadvantage under these circumstances, as provided in sec. 26.67(b)(2).
Does a recipient simply accept an owner’s PNW statement? Should the recipient investigate? Section 26.67(a)
A PNW statement is a signed representation to a DOT recipient that the information presented is true. Falsification can lead to criminal prosecution. Recipients should first review a PNW statement to determine whether the individual’s PNW is more than $1,320,000.
- In addition, recipients should review each PNW statement to determine if there are any obvious mistakes, omissions, or suspicious information. Where the recipient has a reasonable basis to believe that the PNW statement is incomplete or inaccurate, the recipient may “look behind” it, by seeking further information or conducting an investigation to clear up the issues. Recipients have discretion to devise procedures to obtain needed information in these cases.
- The Department emphasizes that recipients are prohibited from using requests for additional information concerning PNW issues as a way of targeting, punishing, harassing, or discriminating against specific firms or classes of firms. We regard such misconduct as noncompliance with part 26 (see 26.7(b), 26.109(d)).
- If there is a credible allegation that an owner has falsified a PNW statement, the recipient should investigate and/or refer the matter to the Department of Transportation’s Office of Inspector General.
In calculating personal net worth, how should retirement savings be counted? (Section 26.67(a)(2)(iii)(d))
The basic principle in counting assets in the personal net worth calculation is to count the present value of assets attributable to the individual.
- Retirement savings or investment devices (e.g., a pension plan, IRA, 401(k)) do count toward calculations of an individual’s personal net worth. This is because these assets, even though generally not readily available as sources of financing for business operations, are part of an individual’s overall wealth.
- Recipients should count only the present value of a retirement savings or investment device toward the personal net worth calculation. That is, the recipient needs to determine how much the asset is actually worth today, not what its face value is or what the individual’s return on it may be at some point in the future.
- In making this present value determination, the recipient would subtract the interest or tax losses the individual would incur if he or she liquidated the asset today.
In calculating personal net worth, how should assets held by spouses in joint or community property be counted?
- The Department is aware that there have been many questions about how to calculate personal net worth (PNW), of which this is one. The Department has asked for comment on potential changes to the rule on this subject. Meanwhile, we offer the following suggestions concerning marital assets.
- The basic principle in counting assets in the personal net worth calculation is to count the present value of assets attributable to the individual.
- If an asset is held as community property, or jointly (including a tenancy by the entireties) between two people, 50 percent of the value of the asset is normally attributed to each person. For example, suppose a woman owner of a firm applying for DBE certification has, with her husband, a $100,000 joint savings account. Half of this asset — $50,000 — would be counted toward her personal net worth. The recipient to which her firm applied would not count the full $100,000 toward her personal net worth.
- A legal instrument valid under state law can alter this normal attribution of assets between owner.