Finding the Ability to Accumulate Substantial Wealth- Proposed Changes to Federal DBE Program

Preliminary NoteThe U.S. Department of Transportation recently released a long-awaited Notice of Proposed Rulemaking to modernize the Disadvantaged Business Enterprise (DBE) program regulations. This blog is part of a series looking at some of the significant proposed changes. A copy of all of the proposed changes can be found here: https://www.federalregister.gov/documents/2022/07/21/2022-14586/disadvantaged-business-enterprise-and-airport-concession-disadvantaged-business-enterprise-program.

Among the many potential changes announced by the U.S. Department of Transportation is a change to the rebuttal of the presumption of economic disadvantage – otherwise known as the ability to accumulate substantial wealth (“AASW”). 

Under the regulations, women, Black Americans, Hispanic Americans, Native Americans, Asian-Pacific Americans, Subcontinent Asian Americans, and other minorities found to be disadvantaged by the SBA, are presumed to be economically disadvantaged.  49 C.F.R. § 26.67(a)(1).  

The presumption of economic disadvantage is rebuttable, even if the personal net worth calculation is below the limit.  Currently, the process by which a certifier can rebut the presumption of economic disadvantage is outlined in 49 C.F.R. §26.67(b). This regulation identifies six factors that may be considered by the certifier, among other factors:

  1. Whether the average AGI of the owner over the most recent three-year period exceeds $350,000;
  2. Whether the income was unusual and not likely to occur in the future;
  3. Whether the earnings were offset by losses
  4. Whether the income was reinvested in the firm or used to pay taxes arising in the normal course of operations of the firm;
  5. Other evidence that income is not indicative of a lack of economic disadvantage; and
  6. Whether the total fair market value of the owner’s assets exceeds $6 million.

Read more here.