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To comply with court, federal agency allows whites to claim social disadvantage

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For the second time in less than a year, a federal program for minority-owned businesses is being revamped to serve all races — including whites — challenging long-held norms about what it means to be “socially disadvantaged » amid a wave of injunctions. and prosecutions.

In March, a federal judge in Texas ordered Minority Business Development Agency will open its doors to entrepreneurs of all racial and ethnic backgroundsruling that its presumption that blacks, Latinos, Asians and other minorities are inherently disadvantaged violated the Equal Protection Clause of the Constitution.

The government did not appeal the ruling, which echoes the Supreme Court’s historic decision last summer to overturn race-based college admissions. In a memo dated March 20, MBDA announced that it would comply with the order, directing staff at its 40 business centers across the country to waive racial considerations when reviewing applicants. Instead, applicants must sign a form, under penalty of perjury, attesting to their disadvantage to certify that they are a “minority business enterprise.” No supporting documents are required.

It is the latest sign that the government is detaching its definition of social disadvantage from broad racial and ethnic classifications, a presumption increasingly besieged by legal challenges. Last year, the Small Business Administration was forced to overhaul a program for entrepreneurs in minority governments and now requires applicants to prove their disadvantage through testing. A Department of Transportation program’s use of racial categories is also facing legal scrutiny, while dozens of other federal and state programs serving minorities face similar threats.

MBDA’s new customer engagement form asks applicants to certify their disadvantage in order to get its help in accessing capital and government contracts. Social disadvantage, according to the agency, applies to anyone subject to racial prejudice because of their identity. Economic disadvantage, on the other hand, reflects an individual’s inability to compete in the free enterprise system because their identity interferes with their access to capital and credit.

The agency “complies and will continue to comply with the ruling and the law as it serves communities across the country,” Commerce Secretary Gina Raimondo said in a statement, adding that it was disappointed by the court’s decision. “Reaching our full economic potential requires that all Americans, regardless of background, geography or demographics, be able to start and grow their businesses. »

But Dan Lennington, an attorney with the Wisconsin Institute for Law & Liberty who sued MBDA on behalf of three white plaintiffs, warned in an email that the agency’s response could lead to “a culture of dishonesty.”

“MBDA is shirking its responsibility to decide who is eligible for assistance by using a non-standard process and delegating decision-making to individual applicants,” he said. “Apparently, an applicant can now qualify for federal aid if they simply feel disadvantaged. But it is MBDA that should make these decisions regarding eligibility based on the facts, not the beneficiaries of such a program based on their feelings. »

The MBDA changes mark the second time the federal government has abandoned racial classifications after a court ruling. In July, a federal judge in Tennessee barred the SBA’s 8(a) program, which helps minority-owned businesses win government contracts, from presuming that certain minorities were disadvantaged.

In response to this decision, which the government has not appealed, the SBA now requires applicants to prove their disadvantage through trials who recount specific experiences in which their race or identity hindered their success in the business world.

The change is part of the continuing fallout from the June 29 Supreme Court decision against Harvard and the University of North Carolina, which upended race-conscious college admissions. Although the high court’s decision — which blasted Harvard’s use of racial categories as “imprecise” and “overbroad” — concerned college admissions, its reasoning weighed heavily in subsequent court rulings banning the use of racial classifications in government programs, including the injunction against the MBDA.

For the first time since 1997, the Office of Management and Budget in March revised the racial categories it uses to collect data, combining questions on race and ethnicity and adding “Middle East or Africa of the North” as a new category. Other federal agencies are expected to adopt the new system. And in March, the Smithsonian settled a lawsuit alleging that an internship at the National Museum of the American Latino only hired Latino students, promising to clarify that the program was open to all.

Prior to this order, MBDA presumed a list of groups to be socially and economically disadvantaged, including Blacks, Latinos, Native Americans, Asians, Puerto Ricans, Eskimos, Aleuts, and Hasidic Jews.

Now, according to the March 20 guidance, MBDA centers “SHALL NOT apply these legal or regulatory presumptions.”

The MBDA was established by executive order in 1969 by President Richard M. Nixon and made permanent in 2021 under the Infrastructure Investment and Jobs Act, which significantly increased its funding to $550 million over five years. In fiscal 2022, MBDA customers secured $1.6 billion in private and government contracts, according to agency data. The agency also helped companies raise $1.2 billion in capital and create or retain approximately 16,000 jobs. Black-owned businesses received $680 million in contracts, the highest amount among all groups, followed by Hispanic-owned businesses with $526 million.

Before the court order, minority business owners were required to sign customer engagement forms certifying their disadvantage, even if they benefited from the presumption. The difference is that its new form states that “an individual of any race or ethnicity may meet the definition of a socially or economically disadvantaged person under the MBDA.”

Business eligibility for aid is also determined based on race-neutral criteria, such as the age of the business, the applicant’s net worth and the sustainability of the business, according to guidelines from the March 20.

Sarah Hinger, deputy director of the racial justice program at the American Civil Liberties Union, said the changes at MBDA show the company is not straying from its mission to help socially and economically disadvantaged businesses.

“It’s good to see,” she said. “And in reality, it seems like what the agency is doing here is clarifying the scope of who is included in the businesses that they serve.”

Richard Kahlenberg, director of the American Identity Project at the Progressive Policy Institute, said dropping race could help MBDA focus more on socioeconomic status. But, he added, using a form to establish applicants’ disadvantage is unlikely to help the agency achieve its goals, and he suggested that the agency adopt a process of drafting tests. similar to universities and the SBA to help focus on an individual’s needs.

Kahlenberg, who testified for the plaintiffs in the Harvard case, has long criticized race-based affirmative action, arguing instead for a class-based approach.

“If you care about racial diversity, as I do, you want to find more equitable ways to achieve the same result,” he said.

“And it is precisely because of the country’s history of discrimination and current realities of racial discrimination that communities of color will disproportionately benefit from a needs-based approach to affirmative action,” he said. he adds. “And there’s no constitutional problem with that.”

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