SB 285
Department of Legislative Services
Maryland General Assembly
2021 Session
FISCAL AND POLICY NOTE
First Reader
Senate Bill 285 (Senator Patterson)
Education, Health, and Environmental Affairs
Minority Participation in the Alcoholic Beverages Industry - Study
This bill requires the Governor’s Office of Small, Minority, and Women Business Affairs
(GOSBA), in consultation with specified entities, to conduct a study of the participation of
minority-owned businesses in the alcoholic beverages industry in the State. The Office of
the Attorney General (OAG) and the Maryland Department of Transportation (MDOT)
provide staff for the study. GOSBA must report its findings and recommendations to the
Governor and the General Assembly by January 1, 2021. The bill takes effect
June 1, 2021, and terminates June 30, 2022.
Fiscal Summary
State Effect: General and/or special fund expenditures increase, potentially significantly,
in FY 2022 to conduct the required disparity study, as discussed below. GOSBA and/or
MDOT can otherwise conduct the study with existing resources. Apart from any costs
associated with the disparity study, OAG and MDOT can provide staff support for the
study with existing resources. No effect on revenues.
Local Effect: None.
Small Business Effect: Minimal.
Analysis
Bill Summary: The study must include:
 historical and current levels of participation by minority-owned businesses in the
alcoholic beverages industry in the State;
 historical and current levels of market activity in retail sales of alcoholic beverages
in the State, especially in areas with high concentrations of minority population;
 a demonstration of historical and current disparities in the levels of participation of
minorities in the alcoholic beverages industry through a commissioned and
completed disparity study (emphasis added); and
 consideration and development of legally supportable mechanisms to increase the
participation of minorities in each tier of the alcoholic beverages industry.
Current Law: For a complete description of the State’s Minority Business Enterprise
(MBE) program, please see the Appendix – Minority Business Enterprise Program.
The distinctive component of Maryland’s approach to regulating alcohol sales is the
three-tier distribution system. Designed to thwart an arrangement called “vertical
integration” in which all steps in the supply chain are controlled by the same company, the
system separates ownership and operations among (1) manufacturers; (2) wholesalers; and
(3) retailers. In its purest form, the system authorizes manufacturers (tier one) to sell only
to wholesalers (tier two); wholesalers only to retailers (tier three); and retailers only to
consumers. Generally in Maryland, the Alcohol and Tobacco Commission issues statewide
licenses to manufacturers and wholesalers (an authority that transferred from the
Comptroller’s Office by statute, beginning in 2021), while each licensing jurisdiction
issues licenses to retailers to operate within its boundaries.
State Expenditures: As noted in the appendix, implementation of race-based procurement
preferences or set-aside programs must be justified by the results of a study that shows
disparity in the participation of minority-owned businesses in particular industries. The bill
requires GOSBA to conduct such a study, but it also requires MDOT to provide staff for
the study. The appendix notes that MDOT is the State’s MBE certification agency; in that
capacity, MDOT conducts the statewide MBE disparity studies roughly every five years.
The last one was completed in February 2017. Therefore, GOSBA has no experience
conducting a disparity study.
A complete statewide disparity study typically costs between $3 million and $5 million.
Industry-specific disparity studies cost less, but the price varies depending on whether the
statewide study examined the specific industry (alcohol manufacturing, distribution, and
sales) in question, and whether data from the statewide study can, therefore, be used and/or
reanalyzed for the industry-specific study. Chapter 598 of 2018 required a disparity study
for the medical cannabis industry, and MDOT was able to do a reanalysis of the statewide
data because it included the necessary North American Industrial Classification System
(NAICS) industry codes for the medical cannabis industry. That reanalysis was done for
approximately $75,000. However, MDOT advises that if an original study for the alcohol
industry is necessary, it may cost as much as $500,000.
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A review of the 2017 statewide study does not offer a definitive answer regarding whether
NAICS codes for the alcohol industry were included in the analysis. The “commodities,
supplies, and equipment” industry category included some industry groups that may
include components of the alcohol industry, including “special food services,” “beverage
manufacturing,” and “specialty food stores,” but these findings do not yield a definitive
conclusion regarding the inclusion of the alcohol industry. A more in-depth analysis of the
NAICS codes used in the analysis is required and that is beyond the scope of this fiscal and
policy note.
Thus, the cost of the disparity study required by the bill likely ranges between $75,000 and
$500,000, depending on the availability of data from the statewide study. As the bill
requires GOSBA to conduct the study with staff support from MDOT, which has extensive
experience managing similar studies and also has access to the data from the statewide
study, either general or special funds (or both) may be used for the study. GOSBA
otherwise advises that, if MDOT takes the lead on the disparity study, it can provide
support with existing resources. It is assumed that OAG and MDOT can provide staff
support to the study with existing resources.
Additional Information
Prior Introductions: HB 1333 of 2020 passed the House as amended and was referred to
the Senate Education, Health, and Environmental Affairs Committee, but no further action
was taken.
Designated Cross File: HB 422 (Delegate D. Barnes) - Economic Matters.
Information Source(s): Department of Commerce; Maryland Department of
Transportation; Governor’s Office of Small, Minority, and Women Business Affairs;
Montgomery and Prince George’s counties; Comptroller’s Office; Department of
Legislative Services
Fiscal Note History: First Reader - February 18, 2021
an/ljm
Analysis by: Michael C. Rubenstein Direct Inquiries to:
(410) 946-5510
(301) 970-5510
SB 285/ Page 3
 Appendix – Minority Business Enterprise Program
The State’s Minority Business Enterprise (MBE) program requires that a statewide goal
for MBE contract participation be established biennially through the regulatory process
under the Administrative Procedure Act. The biennial statewide MBE goal is established
by the Special Secretary for the Governor’s Office of Small, Minority, and Women
Business Affairs (GOSBA), in consultation with the Secretary of Transportation and the
Attorney General. In a year in which there is a delay in establishing the overall goal, the
previous year’s goal applies. The Special Secretary is also required to establish biennial
guidelines for State procurement units to consider in deciding whether to establish subgoals
for different minority groups recognized in statute. In a year in which there is a delay in
issuing the guidelines, the previous year’s guidelines apply.
In August 2013, GOSBA announced a new statewide goal of 29% MBE participation that
applied to fiscal 2014 and 2015; as no new goal has been established, the 29% goal remains
in effect for fiscal 2021. GOSBA issued subgoal guidelines in July 2011 and then updated
them effective August 2020, as summarized in Exhibit 1. The guidelines state that subgoals
may be used only when the overall MBE goal for a contract is greater than or equal to the
sum of all recommended subgoals for the appropriate industry, plus two. In June 2014, new
regulations took effect allowing MBE prime contractors to count their own work for up to
50% of a contract’s MBE goal and up to 100% of any contract subgoal. Previously,
certified MBE prime contractors could not count their own participation toward any goal
or subgoal on an individual contract, but their participation was counted toward the State’s
MBE goal.
Exhibit 1
Subgoal Guidelines for Minority Business Enterprise Participation
Architectural/ Information Supplies/
Construction Engineering Maintenance Technology Services Equipment
African
American 8% 7% 9% 10% - 6%
Hispanic - - 3% - 2% 2%
Asian - - 2% - 3% -
Women 11% 10% - 10% 10% 8%
Total 19% 17% 14% 20% 15% 16%
Total +2 21% 19% 16% 22% 17% 18%
Source: Governor’s Office of Small, Minority, and Women Business Affairs
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There are no penalties for agencies that fail to reach the statewide target. Instead, agencies
are required to use race-neutral strategies to encourage greater MBE participation in State
procurements.
History and Rationale of the Minority Business Enterprise Program
In 1989, the U.S. Supreme Court held in the City of Richmond v. J.A. Croson Co. that state
or local MBE programs using race-based classifications are subject to strict scrutiny under
the equal protection clause of the Fourteenth Amendment to the U.S. Constitution. In
addition, the ruling held that an MBE program must demonstrate clear evidence that the
program is narrowly tailored to address actual disparities in the marketplace for the
jurisdiction that operates the program. As a result, prior to each reauthorization of the
State’s MBE program, the State conducts a disparity study to determine whether there is
continued evidence that MBEs are underutilized in State contracting.
The most recent disparity study was completed in 2017 and serves as the basis for the most
recent reauthorization of the MBE program. It found continued and ongoing disparities in
the overall annual wages, business earnings, and rates of business formation between
nonminority males and minorities and women in Maryland. For instance, average annual
wages for African Americans (both men and women) were 37% lower than for comparable
nonminority males; average annual wages for nonminority women were 33% lower than
for comparable nonminority males. It also found continued disparities in the use of MBEs
by the State compared to their availability in the marketplace to perform work in designated
categories of work. For instance, African American-owned construction businesses were
paid 5.1% of State construction contract dollars, but they made up 10.3% of the
construction sector in the relevant State marketplace. Nonminority women-owned
construction businesses were paid 7.5% of State construction contract dollars but made up
13.7% of the construction sector. According to the analysis, these differences were large
and statistically significant.
The MBE program is scheduled to terminate July 1, 2022; it has been reauthorized
eight times since 1990, the latest by Chapter 340 of 2017. Exhibit 2 provides MBE
participation rates for major Executive Branch agencies based on contract awards made
during fiscal 2019, the most recent year for which data is available.
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 Exhibit 2
Minority Business Enterprise Participation Rates, by Agency
Fiscal 2019
Cabinet Agency % Participation
Aging 1.4%
Agriculture 4.9%
Budget and Management 7.4%
Commerce 1.2%
Education 6.0%
Environment 28.6%
Executive Department 1.8%
General Services 15.0%
Health 14.6%
Higher Education Commission 3.0%
Housing and Community Development 38.4%
Human Services 14.7%
Information Technology 15.4%
Juvenile Services 19.5%
Labor 26.1
Military 7.0%
Natural Resources NA1
Planning 4.6%
State Police 15.0%
Public Safety and Correctional Services 17.5%
Transportation – Aviation Administration 27.2%
Transportation – Motor Vehicle Administration 16.0%
Transportation – Office of the Secretary 18.5%
Transportation – Port Administration 18.5%
Transportation – State Highway Administration 20.3%
Transportation – Transit Administration 15.1%
Transportation – Transportation Authority 11.6%
Statewide Total2 17.9%
1
Data not provided.
2
Includes the University System of Maryland, Morgan State University, St. Mary’s College of Maryland,
and non-Cabinet agencies.
Source: Governor’s Office of Small, Minority, and Women Business Affairs
SB 285/ Page 6
Requirements for Minority Business Enterprise Certification
An MBE is a legal entity, other than a joint venture, that is:
 organized to engage in commercial transactions;
 at least 51% owned and controlled by one or more individuals who are socially and
economically disadvantaged; and
 managed by, and the daily business operations of which are controlled by, one or
more of the socially and economically disadvantaged individuals who own it.
A socially and economically disadvantaged individual is defined as a citizen or legal
U.S. resident who is African American, Native American, Asian, Hispanic, physically or
mentally disabled, a woman, or otherwise found by the State’s MBE certification agency
to be socially and economically disadvantaged. An MBE owned by a woman who is also
a member of an ethnic or racial minority group may be certified as being owned by both a
woman and by a member of a racial or ethnic minority, but for the purpose of participating
on a contract as an MBE, it can only be counted as one or the other. The Maryland
Department of Transportation is the State’s MBE certification agency.
A socially disadvantaged individual is someone who has been subject to racial or ethnic
prejudice or cultural bias within American society because of his or her membership in a
group and without regard to individual qualities. An economically disadvantaged
individual is someone who is socially disadvantaged whose ability to compete in the
free enterprise system has been impaired due to diminished capital and credit opportunities
compared with those who are not socially disadvantaged. An individual with a personal net
worth in excess of $1.5 million, adjusted annually for inflation, is not considered
economically disadvantaged. The inflation-adjusted limit for calendar 2021 is $1,788,677.
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