The legislative withdrawal marks a major shift in the nation's long-running debate over racial favoritism. Both plans were aimed at expanding economic opportunity for racial minorities: The Minority Business Development Office helps participating companies access capital and other resources, while the other plan, run by the Small Business Administration, opens the door to billions of dollars in federal contracting funding.
But in both cases, after judges ruled that racial preferences were unconstitutional, the Justice Department did not appeal the rulings, choosing instead to quietly roll back fundamental aspects of the programs' mission.
“It's very simple: they don't appeal because they would lose,” Dan Lennington, an attorney with the Wisconsin Institute for Law and Liberty, who represented plaintiffs in a lawsuit against the Texas Minority Business Development Agency, said in an email. “Losing in higher courts would be even worse, as it would set important precedent and spur challenges to other programs. … Their litigation strategy appears to be containment; they want to prevent a total dismantling of Biden's racial equity policies before he leaves office.”
Asked about the trials, a senior administration official, who spoke on condition of anonymity because some of the litigation is ongoing, said, “We carefully review every decision and determine the right path forward toward achieving our primary goal of creating a level playing field for all.” The official said the judges who handed down these adverse decisions “ignore the reality that the playing field is still not level for many entrepreneurs.”
The government's decision to abandon the appeal disappointed some representatives of minority-owned businesses.
“I believe that if we succumb to basic principles of fairness, we will be complicit in the goals of those who are seeking to dismantle and destroy our society. [diversity and inclusion] “This is a critical moment for the Black community,” said Lenwood V. Long Sr., CEO of the African American Community Development Financial Institution (CDFI) CEO Alliance, a coalition of leaders dedicated to “empowering Black communities by lobbying and influencing the financial sector to operate more equitably.”
The court's withdrawal comes amid a multi-front legal battle between the Biden administration, which has pushed for racial equity initiatives, and a group of conservative legal organizations that have been heavily motivated by the Supreme Court's efforts to eradicate racial preferential treatment in academia and government.
During Biden's first three years in office, the White House has sought to create more programs for minorities. Federal contracts to “disadvantaged small businesses” — comprised primarily of minority-owned businesses — have increased nearly 30%, from $59 billion to $76 billion, according to government statistics.
Biden has also signed major legislation that allocates benefits along racial lines, including provisions in the American Rescue Plan that prioritize minorities in the allocation of $28.6 billion to restaurants, $4 billion to help farmers pay off their mortgages, and up to $4 billion in aid to homeowners.
Almost immediately, these programs came under legal attack from conservative public interest law firms. Under the Biden administration, conservative legal groups have filed more than a dozen lawsuits challenging racial preferences in federal programs.
Many of the conservative challenges have been successful, but the outcomes of others are still pending. Meanwhile, numerous state programs that favor minorities are also at risk. There is no comprehensive list of programs, but they permeate the federal government and range from very small, like internships, to multi-billion-dollar efforts tied to government contracts. Most federal agencies, including the Departments of Commerce, Transportation, Agriculture, and Energy, have civil rights offices that oversee diversity programs and disadvantaged business programs.
Legal scholars agreed with Lennington's assessment that the Justice Department risks losing on appeal, which could set a precedent for disqualifying other diversity programs, with the risk of a loss in higher courts.
Government's Affirmative Action Policy Comes Under Criticism
The largest racial bias program to date is the so-called “8(a) Program,” which is run by the SBA but affects nearly every aspect of the bureaucracy. It is one of the major programs currently under legal attack.
This allows designated small businesses to receive millions of dollars in special budgets and sole-source contracts. To be eligible, businesses must be majority-owned by people who are socially and economically disadvantaged. Black, Hispanic, Asian, and Native American people qualify as socially disadvantaged.
In making the case for the expansion, the White House noted that less than 10 percent of federal agency contracting funding typically goes to disadvantaged small businesses.
The SBA reported to Congress that the program is “one of the most effective economic tools to accomplish this commitment to underserved communities.”
Government-wide, contracts with small, disadvantaged businesses increased by nearly 30% under the Biden Administration, with some demographics seeing bigger increases than others: Federal contracts to Black-owned businesses increased 9%, from $9.4 billion to $10.2 billion; Asian American-owned businesses increased 31%, to $20.5 billion; and Native American businesses increased 54%, to $23.3 billion.
After white entrepreneurs challenged the 8(a) program, a federal judge in Tennessee ruled that the government cannot give preferential treatment to people based on race, despite identifying long-standing barriers to wealth faced by minorities. The judge found that the program, which uses broad racial categories to direct benefits to minorities, violates the Constitution's Equal Protection Clause, mirroring Supreme Court decisions that overturned affirmative action in college admissions.
The Justice Department declined to appeal the SBA's ruling when it was handed down last July, and instead rushed to comply with a court order that said the agency could no longer presume that certain minorities were disadvantaged.The SBA now makes applicants prove they are disadvantaged in an essay.
While the government can still appeal to the U.S. Court of Appeals for the 6th Circuit, the department appears to be adapting to the July injunction, formalizing the essay-writing process and training new employees to read the stories.
“This certainly appears to be working,” SBA Administrator Isabel Casillas Guzman told The Washington Post. “We're moving forward with this process, and we're actually able to accommodate some of the disadvantaged people in this country.”
The plaintiff, a white female contractor who claims she lost out on contracts because of 8(a) preferential treatment, challenges the SBA’s implementation of the essay process, alleging that the program has not fully complied with the injunction. She questions whether the process is less rigorous for participants who previously benefited from the presumption.
The government argues that this is not the case. For now, the government has chosen not to appeal the injunction, but continues to oppose the plaintiffs' requests for the court to further restrict the program.
“Containment” Strategy
The other lawsuit, filed by three white Texas entrepreneurs, involves the Minority Business Development Agency, a 55-year-old program established to help minority businesses access capital and government contracts.
A Texas judge in March ordered the institution to open its doors to people of all races, including white people.
The Justice Department will not appeal. In a June 28 letter to House Speaker Mike Johnson (R-Louisiana), Attorney General Elizabeth B. Preloger wrote that while the Justice Department is committed to defending the program, “it is not in the best interest of the United States to further review the district court's decision in this particular case.”
Preloger said the decision is narrow in scope and will have minimal impact on the department's mission, which extends broadly to include everyone, not just minorities.
“The injunction does not currently prevent MBDA from continuing to pursue our mission, which is our fundamental priority,” Commerce Secretary Gina Raimondo and Deputy Secretary Don Graves said in a joint statement acknowledging the Justice Department's decision not to appeal.
If the administration had chosen to appeal, the case would have been heard by the U.S. Court of Appeals for the 5th Circuit, which is dominated by Republican-appointed justices and has quickly developed a reputation as one of the most conservative appellate courts in the country.
Legal experts said the Justice Department's concessions in both cases were the result of a kind of cost-benefit analysis that determined the cases were unlikely to succeed in conservative-leaning appeals courts.
“Maybe they want to avoid a ruling that weakens or nullifies other programs that help minorities who have been historically discriminated against,” said Noah Feldman, a constitutional law professor at Harvard University. “Or maybe they're afraid that the appeals court will go further than the district court and find that there isn't enough evidence of past discrimination in this case, which could affect other programs.”
Many Losses, One Appeal
The Biden administration's minority-facing programs faced setbacks in 2021 when conservative groups challenged elements of the American Rescue Plan, one of which was a $29 billion SBA grant program for restaurants that struggled during the pandemic, which prioritized businesses owned by women, veterans and minorities.
In May 2021, the U.S. Court of Appeals for the Sixth Circuit ruled that the program violated the Constitution's Equal Protection Clause, forcing the SBA to reverse its preferential treatment based on race and sex.
Since then, the lawsuit against the restaurant aid in the American Rescue Plan has been cited in numerous lawsuits challenging race-based government programs. Vitolo vs. Guzman — as a precedent that preferential treatment based on race is unconstitutional.
In June 2021, a federal judge in Florida temporarily blocked a $4 billion debt relief program for minority-owned farms authorized under the American Rescue Plan Act. This was one of several preliminary injunctions blocking the program following a flurry of challenges. The Department of Justice did not appeal the temporary order. Before the case could move to a stage where the court could determine permanent relief, Congress passed the Inflation Control Act in August 2022, repealing the debt relief program. The new debt relief program focused on economic need, not race. The lawsuit was dismissed.
More recently, in June, a federal judge in Texas temporarily blocked USDA disaster relief programs from favoring minority and female farmers.
As in the other cases, the government has not appealed.
