SB 689
Department of Legislative Services
Maryland General Assembly
2021 Session
FISCAL AND POLICY NOTE
Third Reader
Senate Bill 689 (Senator Sydnor)
Education, Health, and Environmental Affairs Health and Government Operations
Office of Small, Minority, and Women Business Affairs - Duties of the Special
Secretary - Minority Business Enterprises
This bill expands the duties of the Special Secretary for the Office of Small, Minority, and
Women Business Affairs (GOSBA) to include (1) establishing a mentoring program in
which large and established minority business enterprises (MBEs) mentor start-up and
small MBEs; (2) conducting a feasibility study for providing one-on-one assistance to
MBEs in submitting competitive and successful bids and proposals for procurement
contracts; (3) providing training and educational opportunities for nonminority prime
contractors regarding their duties under the State’s MBE program; and (4) establishing an
annual awards program to recognize localities that demonstrate the highest excellence in
MBE support.
Fiscal Summary
State Effect: General fund expenditures increase by $161,100 in FY 2022 to implement
the bill. Out-year expenditures reflect annualization, ongoing operating expenses, and the
termination of one-time costs. No effect on revenues.
(in dollars) FY 2022 FY 2023 FY 2024 FY 2025 FY 2026
Revenues $0 $0 $0 $0 $0
GF Expenditure 161,100 162,500 166,900 172,400 178,000
Net Effect ($161,100) ($162,500) ($166,900) ($172,400) ($178,000)
Note:() = decrease; GF = general funds; FF = federal funds; SF = special funds; - = indeterminate increase; (-) = indeterminate decrease
Local Effect: The bill is not expected to materially affect local government finances or
operations.
Small Business Effect: Potential meaningful.
Analysis
Current Law: For an overview of the State’s MBE program, please see the Appendix –
Minority Business Enterprise Program.
GOSBA is established within the Executive Department, led by a Special Secretary who is
appointed by, and serves at the pleasure of, the Governor. With respect to MBEs, the
Special Secretary must, subject to the limitations of any law that governs the activities of
other Executive Branch units:
carry out each State or federal program that is created to promote the growth of or
participation in MBEs;
promote and coordinate training regarding the requirements of the MBE program;
promote, coordinate, and participate in the plans, programs, and operations of State
government that promote or otherwise affect the establishment, preservation, and
strengthening of MBEs;
promote activities and the use of the resources of State and local governments and
private entities for the growth of MBEs;
coordinate the effort of private entities and public agencies to develop MBEs;
establish a system to develop, collect, summarize, and give out information related
to establishing, operating, or promoting MBEs; and
subject to the limitations of law and the availability of funds, provide technical and
managerial assistance to MBEs and other related activities.
State Expenditures: Although the specific activities required by the bill already fall under
GOSBA’s existing statutory responsibilities, GOSBA lacks the staff necessary to carry
them out. The mentoring program, in particular, requires (1) ongoing outreach to recruit
and train new mentors and their protégés and (2) monitoring of the mentoring relationships
to promote their effectiveness and to provide appropriate recognition, as required by the
bill. GOSBA lacks the expertise to conduct the feasibility study and likely must contract
with a third party to complete it. An annual awards program likely requires event planning
as well as facility rental and catering costs. GOSBA does not have the staff or the resources
to carry out all these tasks.
SB 689/ Page 2
Therefore, general fund expenditures increase by $161,057 in fiscal 2022, which accounts
for the bill’s October 1, 2021 effective date. This estimate reflects the cost of hiring
one program director and one outreach coordinator to (1) manage the mentorship program;
(2) develop, arrange, and provide training to nonminority prime contractors; and
(3) organize an annual awards program and recognition of local governments. It includes
salaries, fringe benefits, one-time start-up costs, and ongoing operating expenses. It also
includes a one-time expense of $20,000 for the feasibility study and ongoing expenses for
the awards program.
Positions 2.0
Salaries and Fringe Benefits $114,894
One-time Feasibility Study 20,000
Awards Program 15,000
Other Operating Expenses 11,163
Total FY 2022 State Expenditures $161,057
Future year expenditures reflect full salaries with annual increases and employee turnover
and ongoing operating expenses, and the termination of one-time expenses.
Small Business Effect: MBEs may be more successful in bidding on State contracts due
to the mentoring they receive and the training provided to prime contractors.
Additional Information
Prior Introductions: None.
Designated Cross File: None.
Information Source(s): Governor’s Office of Small, Minority, and Women Business
Affairs; Department of Legislative Services
Fiscal Note History: First Reader - February 15, 2021
md/ljm Third Reader - March 17, 2021
Analysis by: Michael C. Rubenstein Direct Inquiries to:
(410) 946-5510
(301) 970-5510
SB 689/ 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
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.
SB 689/ Page 5
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 689/ 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.
SB 689/ Page 7
Statutes affected: Text - First - Office of Small, Minority, and Women Business Affairs - Duties of the Special Secretary - Minority Business Enterprises: 9-301 State Government, 9-305 State Government
Text - Third - Office of Small, Minority, and Women Business Affairs - Duties of the Special Secretary - Minority Business Enterprises: 9-301 State Government, 9-305 State Government