SB 909
Department of Legislative Services
Maryland General Assembly
2021 Session
FISCAL AND POLICY NOTE
Third Reader - Revised
Senate Bill 909 (Senator Smith, et al.)
Budget and Taxation Appropriations
Capital Projects - Minority Business Enterprise Goals
This bill requires the Governor’s Office of Small, Minority, and Women Business Affairs
(GOSBA) – prior to the release of funds to a recipient of a State capital grant of $3.0 million
or more from a miscellaneous grant program, a House of Delegates initiative, or a
Senate initiative – to review the project for subcontracting opportunities under the State’s
Minority Business Enterprise (MBE) program and, if practicable, establish MBE subgoals
for the project. The bill establishes oversight and reporting requirements for GOSBA and
the Department of General Services (DGS). The bill takes effect July 1, 2021, but the
application of MBE subgoals to grant recipients takes effect July 1, 2022.
Fiscal Summary
State Effect: General fund expenditures increase by $26,900 in FY 2022 to implement
the bill; out-year expenditures reflect annualization and ongoing operating expenses. Costs
may increase further, potentially significantly, if a determination is made that a new
disparity study must be completed, as discussed below. No effect on State revenues.
(in dollars) FY 2022 FY 2023 FY 2024 FY 2025 FY 2026
Revenues $0 $0 $0 $0 $0
GF Expenditure 26,900 42,000 43,100 44,700 46,400
Net Effect ($26,900) ($42,000) ($43,100) ($44,700) ($46,400)
Note:() = decrease; GF = general funds; FF = federal funds; SF = special funds; - = indeterminate increase; (-) = indeterminate decrease
Local Effect: Any local government projects that receive miscellaneous State capital
grants of at least $3.0 million are subject to the bill’s requirements. They can comply with
the requirements, or request a waiver, with existing resources. No effect on local revenues.
Small Business Effect: Potential meaningful.
 Analysis
Bill Summary: In setting subgoals for a project, GOSBA must consider the availability
and capacity of MBEs in Maryland and in the county where the project is located to fulfill
the subgoal. If GOSBA establishes MBE subgoals for a capital project, the recipient must
(1) certify to DGS that the recipient expects to achieve the subgoals or (2) request a waiver
of all or part of the subgoals from GOSBA. GOSBA must review each request for a waiver
and report the revised subgoals to DGS.
By July 31 of each year, DGS must submit a report to the Governor and the
General Assembly on the number of waivers granted for the prior fiscal year. The report
must include (1) a description of the capital project; (2) whether the waiver was a partial
or full waiver; and (3) the justification for the waiver.
By June 30, 2022, the Special Secretary for GOSBA, in consultation with the Secretary of
Transportation and the Attorney General, must establish policies and guidelines to
implement the bill’s provisions. By December 1, 2022, GOSBA must report to the
General Assembly on the establishment of MBE subgoals in accordance with the bill,
including (1) whether the establishment of subgoals was practicable based on the type of
capital project and (2) whether any changes should be made to the capital MBE subgoal
framework established by the bill.
The bill may not be construed to prevent a capital project that meets the threshold
requirements, and for which a waiver has been requested, from receiving funds
appropriated for the project in the capital budget.
Current Law: For an overview of the State’s MBE program, please see the Appendix –
Minority Business Enterprise Program.
The General Assembly may authorize the Board of Public Works (BPW) to borrow money
for any public purpose and issue State bonds to evidence the debt.
With the support of a legislative sponsor, any applicant may request funding from the
General Assembly for a capital project. Projects that request funding must (1) be capital in
nature; (2) have a useful life of at least 15 years; (3) serve a public purpose; and (4) not be
for a religious purpose. For the 2021 session, project sponsors do not need to provide
matching funds (which have been required in the past).
SB 909/ Page 2
State Expenditures:
Department of General Services
The Capital Grants and Loan Division within DGS oversees and monitors approximately
1,400 active recipients of capital grants from the State. Each project is required to undergo
a compliance review process to ensure its compliance with the program’s current
requirements as established by BPW. Between 200 and 300 new projects are typically
authorized each year; in recent years, between 10 and 12 projects have received grants of
at least $3.0 million each year.
The bill assigns two new duties to DGS, which can be absorbed with existing resources.
The first is to receive certifications from affected grantees that they expect to achieve the
MBE subgoals established by GOSBA. The bill does not assign any enforcement duties to
DGS related to monitoring achievement of the goals, nor does it make achievement of the
goals a condition of the grant, so negligible additional effort by DGS is required. DGS may
elect to incorporate MBE compliance in its compliance review process, but, in the absence
of an active enforcement role, that can be done with existing resources. Second, the bill
requires DGS to report annually on the number and nature of waivers awarded to grantees.
Given the limited number of affected grantees each year, DGS can prepare the required
report with existing resources.
Governor’s Office of Small, Minority, and Women Business Affairs
The bill requires GOSBA to (1) establish policies and guidelines to implement the bill;
(2) review each project for subcontracting opportunities; (3) if practicable, establish MBE
subgoals for the project; (4) review and process requests for waivers of the subgoals from
grantees; and (5) report by December 2022 on the implementation of the program. These
tasks, though related to GOSBA’s mission, are beyond GOSBA’s current duties and
expertise and require additional staff. The limited number of affected projects, however,
requires only a half-time staff person.
Therefore, general fund expenditures increase by $26,886 in fiscal 2022, which accounts
for new staff beginning on January 1, 2022, due to MBE requirements not applying to grant
recipients until fiscal 2023. The estimate reflects a 0.5 full-time-equivalent MBE
compliance officer to perform the functions assigned to GOSBA, as described above, and
allows sufficient time to establish guidelines and begin reviewing new grantees when the
fiscal 2023 capital budget is passed in April 2022. It includes a salary, fringe benefits,
one-time start-up costs, and ongoing operating expenses.
SB 909/ Page 3
 Position 0.5
Salary and Fringe Benefits $21,632
Operating Expenses 5,2,54
Total FY 2022 GOSBA Expenditures $26,886
Future year expenditures reflect a full salary with annual increases and employee turnover
and ongoing operating expenses.
Disparity Study
As noted in the appendix, the Croson decision by the Supreme Court requires that a
race-based preference program be based on demonstrated economic disparities based on
race, which has typically been demonstrated by the completion of a disparity study.
GOSBA advises that the State’s disparity study examines disparities in State procurement
spending and that a new disparity study must be conducted prior to the implementation of
the bill to examine disparities outside of State procurement spending. A full disparity study
costs between $3 million and $5 million; reanalysis of data collected by existing studies
cost much less, typically between $75,000 and $500,000.
However, the Department of Legislative Services advises it is not certain that a new study
or reanalysis is required for two reasons: (1) the current study, although focused on State
spending, also demonstrates economic disparities in Maryland’s commercial region; and
(2) State funds are being used, at least in part, to fund the capital projects affected by the
bill. However, to the extent that a new disparity study, or reanalysis, is needed, costs
increase, potentially significantly, to conduct the study. Further, implementation of the bill
is likely delayed by at least one year until the study is completed.
Small Business Effect: The bill may expand contracting opportunities for MBEs in the
construction industry to participate in capital construction projects that receive State grants.
Additional Information
Prior Introductions: None.
Designated Cross File: None.
Information Source(s): Governor’s Office of Small, Minority, and Women Business
Affairs; Department of General Services; Board of Public Works; Maryland Department
of Transportation; Department of Legislative Services
SB 909/ Page 4
Fiscal Note History: First Reader - March 5, 2021
rh/ljm Third Reader - March 31, 2021
Revised - Amendment(s) - March 31, 2021
Analysis by: Michael C. Rubenstein Direct Inquiries to:
(410) 946-5510
(301) 970-5510
SB 909/ Page 5
 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 909/ Page 8
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