Does New York’s Personal Net Worth Cap Hurt MWBEs?

In June of 2017, the New York State legislature passed bipartisan legislation lifting the $3.5 million net worth cap on certified MWBEs. The bill received widespread support from the MWBE community, who lauded it as a step forward in helping women and minorities build capacity and win larger and more lucrative bids. But the law was unexpectedly vetoed by Gov. Andrew Cuomo, who said the law contained “several fundamental flaws that make the bill legally specious and practically unenforceable.” Brooklyn Assemblywoman Rodneyse Bichotte, who chairs the Oversight of Minority-and Women-Owned Business Enterprises Subcommittee, called Cuomo’s actions “deeply troubling” and vowed to continue the fight to remove the personal net worth cap.

Why a Personal Net Worth Cap?

New York State law codifies the eligibility criteria for MWBEs, which include the requirement that the business be owned, operated and under the control of a woman or a member of an ethnic minority.  Additionally, it limits certification to business entities owned by individuals whose personal net worth does not exceed $3.5 million. The law allows the business owner(s) to exclude the value of their primary residence or the mortgage on that residence, the ownership interest in the business, and up to $500,000 equity in a qualified retirement savings plan. The New York state law mirrors the United States Department of Transportation Disadvantaged Business Enterprise (DBE) certification requirements, which also impose a personal net worth cap.

The theory behind restricting MWBE certification to individuals with limited assets is, on the surface, a sound one. Both the federal disadvantaged business enterprise program and MWBE programs across the country seek to level the playing field for socially and economically disadvantaged business owners, specifically women and ethnic minorities. And one way to ensure that certified business owners are truly disadvantaged is to put a cap on how much wealth they own. The cap also satisfies the constitutional requirement that programs targeting disadvantaged minorities are “narrowly tailored to remedy prior discrimination,” Cuomo said.

But, according to Assemblywoman Bichotte and other opponents of the personal net worth cap, it has been shown to actually harm MWBEs by restricting their access to capital and bonds. “In turn, this lack of access to capital leaves many MWBEs in a space where they are found too small to win contracts …” Bichotte said in 2018. Further, if a MWBE does win a large contract, it runs the risk of losing its certification if the projects bumps the business owner’s net worth above the cap.

Is A Disparity Study Enough?

Yet another argument voiced by opponents of the personal net worth cap is the fact that New York is one of only two states with MWBE programs that has completed a disparity study. (In fact, New York has completed two.) And while the latest study showed significant improvements, it still concluded that MWBE participation in state contracts is still far from where it should be. For example, MWBEs make up about 54 percent of prime contractors and subcontractors within the state. But MWBE participation as prime contractors ranged from 33 percent in non-construction services to a dismal 14 percent in construction related services. Subcontractor participation was 29 percent in construction-related services and 23 percent in non-construction services.

Thus, the state’s own data seems to indicate that the personal net worth cap is both unnecessary and redundant and, quite probably, harmful to MWBEs.

Meanwhile, the latest New York State budget reauthorized the state’s MWBE law only through 2019. So it seems the debate about how best to serve the state’s woman and minority-owned business owners will continue for some time.

About The Carmoon Group

The Carmoon Group Ltd. is a minority-owned insurance brokerage headquartered in Hicksville, New York. Through our large network of nationwide affiliates, we offer risk management solutions and comprehensive insurance programs for businesses in a wide range of industries. We have the expertise and experience to provide you optimal coverage at the best possible price. So why not give us a call today to set up an appointment for your insurance review? Or if you prefer, just reach out online and we’ll get back to you at a convenient time.

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