A proposed federal rule change would let company owners earn more personal wealth while keeping their status as disadvantaged business enterprises.
But the change only is a slight acknowledgment of a system that improperly measures the qualifications for DBE participation, said Craig Anderson, executive director and president of the American Indian Chamber of Commerce of Wisconsin. A personal bank account, he said, does not reflect a company’s growth.
“That could be because his wife inherited something,” Anderson said. “It might not really have anything to do with the company.”
The federal government encourages DBE participation on highway projects as a way to grow small companies owned by minorities and women, Anderson said. But companies get kicked out of the program if their owners have more than $750,000 in personal worth.
The U.S. Department of Transportation on Monday proposed increasing the limit on DBE owners’ wealth from $750,000 to $1.31 million. It would be the first such change since 1989 and would adjust the limit to match inflation.
The rule forces company owners to constantly consider how much money goes into their personal accounts instead of the business, said Mike Peratt, secretary of Franklin-based Platt Construction Inc., a DBE-certified company. That practice could force owners to put profits into company accounts rather than private accounts, he said.
He said Platt’s owners always watch those limits, but the $750,000 limit so far has not led to any business or personal financial decisions.
“We’ve been fortunate enough that we’ve fallen inside the guidelines,” Peratt said, “so it hasn’t affected us. That’s not to say that it couldn’t.”
Last year, he said, the company did less than $2 million in Wisconsin Department of Transportation projects and continues to operate as a subcontractor.
The rule change, for which comments are due July 9, is part of a broader package that would require state DOTs report annually to their states on the efforts to meet DBE goals. If departments fall short of their goals, they must identify problems and follow plans to solve them. Those that do not follow their plans could lose out on federal highway grants.
Letting more companies keep their DBE status will help state DOTs meet contracting goals, said John Horsley, executive director of the American Association of State Highway and Transportation Officials.
“I suspect that is a practical step,” he said, “that would enable firms who have qualified as DBEs to have a longer period of eligibility to establish their viability.”
Anderson said two or three of the chamber’s 70 DBE members lost their status in 2006 because of the personal finance rule. But none have lost their status recently because of the poor economy, he said.
The longer a company can subcontract as a DBE, the better its chances of growing large enough to have the equipment and bonding capacity to operate as a general contractor, Anderson said. Basing such participation on personal finances, he said, just undercuts the spirit of the program.
“It’s really not a reflection so much of a company,” Anderson said, “but maybe they lose their DBE status because of it.”