Increased Personal Net Worth Limit for Disadvantaged Business Enterprise Certification Creates Opportunities

Preliminary Note: On Tuesday, April 9, 2024, the United States Department of Transportation issued a final rule that modernized the Disadvantaged Business Enterprise (DBE) program and the Airport Concessions DBE (ACDBE) program regulations. Review a copy of the final rule. The changes will go into effect on May 9, 2024. This blog is one in a series highlighting the changes and updates found in this final rule.

One of the most long-awaited updates to the DBE and ACDBE program is the increased personal net worth (PNW) limits. Since one of the requirements for DBE/ACDBE certification is that the owner be economically disadvantaged, applicants must complete a personal net worth statement showing all the assets that they possess. As noted in the preamble to the notice of proposed rulemaking, the analysis of whether someone is considered disadvantaged focuses on a comparison to the wealth of business owners who are not presumed to be socially and economically disadvantaged (i.e., White, non-Hispanic men), not the population in general.

Previously, to be considered economically disadvantaged, an individual had to have a personal net worth of $1.32 million excluding the value of their primary home and ownership in the applicant business. This number has not increased since 2011. The prior rule included retirement accounts in the personal net worth calculation, valued as they would be if the owner liquidated them on the date of application. That often led to confusing calculations.

The new rule raises the maximum personal net worth to $2.047 million and excludes retirement accounts from the calculation. The primary home and ownership in the applicant business remain excluded from the calculation. The applicant must list the value of their retirement accounts on the PNW statement, but it will not count in the final calculation. This is welcome news to owners who have been approaching the PNW limits.

Another welcome change is that the Final Rule sets forth a mechanism by which the PNW limit may be raised at regular intervals without enacting another Final Rule. The regulations set forth a detailed explanation of the formula and information used to make this calculation. This will allow the PNW to be updated to keep up with inflation and other economic changes.

Other updates to the PNW provisions of the Rule include:

• Removing any consideration of state marital or community property rules, as it is neither appropriate nor practical to have a federal agency interpreting state marital and community property laws.
• Clarifying that motor vehicles of any type belong to the individual who holds title to the vehicle.
• Requiring a detailed explanation of the “household contents” portion of the PNW statement and attributing fifty percent of that value to the socially and economically disadvantaged applicant if that applicant has a spouse or domestic partner.

If your company has questions about how these new regulations, or about DBE or ACDBE certification generally, please contact Danielle Dietrich, Esq. at ddietrich@potomaclaw.com or 412-449-9141.

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