Preliminary Note: The U.S. Department of Transportation recently released a long-awaited Notice of Proposed Rulemaking to modernize the Disadvantaged Business Enterprise (DBE) program regulations. This blog is part of a series looking at some of the significant proposed changes. A copy of all of the proposed changes can be found here: https://www.federalregister.gov/documents/2022/07/21/2022-14586/disadvantaged-business-enterprise-and-airport-concession-disadvantaged-business-enterprise-program.
One of the questions that I hear most frequently from my DBE clients and DBE applicants is “when are they going to increase the personal net worth (“PNW”) cap?” Well, that day has finally come.
Among the many potential changes to the DBE rules announced by the U.S. Department of Transportation are significant changes to the PNW cap and how it is calculated.
Under the current regulations, women, Black Americans, Hispanic Americans, Native Americans, Asian-Pacific Americans, Subcontinent Asian Americans, and other minorities found to be disadvantaged by the SBA, are presumed to be economically disadvantaged. 49 C.F.R. § 26.67(a)(1). Applicants must show that their total personal net worth did not exceed $1.32 million (not counting equity in primary residence and value of ownership in the applicant business). 49 C.F.R. §26.67(a)(2).
Increased PNW Cap and Future Raises to Cap
The last increase to the PNW cap was in 2011 when the USDOT raised it to the current $1.32 million. Prior to that, it was set at $750,000 in 1999. Under the proposed rules, the PNW cap will increase to $1.6 million.
The proposed regulations also recognize the need to increase the PNW cap more often to account for inflation. They provide a method and calculation for setting a new PNW cap every five years based on Federal Reserve data. This increase will take place outside of the cumbersome and time-consuming rulemaking process.
Retirement Accounts Are No Longer Included in the PNW Calculation
Though the increase of $280,000 in the PNW cap may not seem like enough, the proposed exemption of retirement accounts effectively provides a significant increase the PNW cap for many applicants. Under the existing regulations, the present value of an applicant’s retirement accounts (minus penalties and taxes) is part of the PNW calculation.
The government has acknowledged that calculating the present value of a retirement account is a very burdensome process that requires a sophisticated tax analysis. The explanation of the proposed rules acknowledges that they also do not like the unintended consequence of punishing people who save for retirement. As a result, the proposed rules will remove retirement accounts entirely from the PNW calculation.
Have thoughts or suggestions on the proposed PNW rules? You can make your voice heard by offering your comment here: https://www.regulations.gov/docket/DOT-OST-2022-0051/document.