The U.S. Department of Transportation has published a notice of proposed rulemaking (NPRM) that makes changes to certain aspects of the DOT Disadvantaged Business Enterprise (DBE) and Airport Concession Disadvantaged Business Enterprise (ACDBE) Programs – including one that could impact the succession plans of DBE CRM firms and other companies.
According to DOT, the DBE programs are intended to provide “small businesses owned and controlled by socially and economically disadvantaged individuals a fair opportunity to compete for federally funded transportation contracts.” A number of ACRA members firms are certified as DBEs.
The NPRM makes a number of changes to the DBE/ACDBE regulations, including:
- Increasing the personal net worth (PNW) cap for DBE owners from $1.3 million to $1.6 million. The cap was last increased in 2011 and has not kept up with inflation; the increased cap ensures that the program continues to target owners who are truly economically disadvantaged. The NPRM also proposes to exclude retirement income from the PNW calculation and change how married couples’ assets are calculated.
- Creating a process to increase the cap every 5 years – without the need for new rulemaking – to keep up with inflation in national household net worth; if household net worth decreases in a five-year period, the PNW cap would not decrease.
- Improving procedures for ensuring state-by-state reciprocity for DBE certifications by “proposing procedures that would facilitate information sharing amongst [Unified Certification Programs] and would establish efficient processes to remove ineligible firms from the program.”
Although the NPRM includes a number of changes to DBE/ACDBE regulations that will benefit DBE companies, the proposal also includes a proposed change that may make it more difficult for DBE firms to attract new, younger owners and engage in succession planning.
The proposal would require that a Socially and Economically Disadvantaged Owner (SEDO) who has financed their investment through a loan must have paid at least 15% of the total value of the investment by the time the firm applies for certification. In addition, the company cannot be a party to the loan, and its property cannot serve as collateral.
In other words, a new owner who has financed their ownership through a loan would have to have paid at least 15% of the value of the investment in order to qualify as an owner, and must put up their own collateral.
In practice, this may be onerous for younger owners, for whom it may take years to pay off 15% of the initial investment, and are less likely to have collateral, like property, to access. For CRM and other DBE firms that are well into succession planning, this proposed change could force them to choose between delaying succession or losing DBE status until the new owners meet the criteria.
This also could serve as a significant disincentive for younger owners – particularly women and people of color – from becoming owners unless they have access to large amounts of capital. This could run counter to the intent of the DBE program, which is to reduce barriers for socially and economically disadvantaged people to become business owners and build capital.
DOT is soliciting comments from the public about the proposed changes until Oct. 31, 2022. Interested parties can comment here.