CIR Tells SBA: Don’t Stop at One Racial Presumption — End Them All

After winning the court case at the center of this rulemaking, The Center for Individual Rights is now pressing the Small Business Administration (SBA) to finish the job it started. CIR submitted a public comment supporting the SBA’s proposed rule to eliminate the “rebuttable” presumption of social disadvantage for members of certain racial and ethnic groups under the Section 8(a) Business Development Program and urged the agency to strip out every remaining race-based preference in the program.

The rulemaking comment explains that:

The rebuttable presumption of social disadvantage in 13 CFR 124.103(b) is not rebuttable in any meaningful sense — the SBA has never actually withheld it from anyone whose membership in a presumed group was undisputed. Because it sorts business owners by race, the presumption must satisfy strict scrutiny, and it satisfies neither prong: the agency lacks a compelling interest, having never analyzed which industries or groups are actually underrepresented, and the presumption is not narrowly tailored, since it has no time limit, no logical endpoint, and sweeps in or excludes people based on crude racial categories rather than any individualized showing of disadvantage. The same defects infect the SBA’s definition of “Native Hawaiian,” which turns on ancestry rather than any race-neutral criterion Congress required.

Read the full comment here.

What to Know

The proposed rule removes the regulatory presumption that members of specified racial and ethnic groups are automatically “socially disadvantaged” for purposes of qualifying for the 8(a) Business Development Program. That presumption traces to a 1986 SBA regulation, and it had functioned in practice as an unrebuttable racial classification. CIR successfully challenged that regulation in Ultima Services Corp. v. U.S. Dep’t of Agriculture.

CIR’s comment urges the SBA to also eliminate the entity-based racial preference built into the program’s separate track for Native Hawaiian Organizations. The SBA currently defines “Native Hawaiian” as anyone descended from the peoples who inhabited Hawaii prior to 1778 — a definition CIR argues is a racial classification,  as the Supreme Court ruled in Rice v. Cayetano.

Why This Matters

Race-based government classifications, whatever their aim, are subject to the Constitution’s strictest judicial scrutiny — a standard the 8(a) presumption cannot meet. The same reasoning that dooms the individual presumption applies with equal force to the racial preference for Native Hawaiian-owned businesses, since the SBA has offered no evidence of compelling interest or any effort at narrow tailoring.

The stakes extend beyond the SBA. Other federal agencies have incorporated the Part 124 presumption into their own benefits and regulatory programs, meaning a race-based classification found unconstitutional in this context has been quietly propagating through the federal government. CIR is separately pursuing an Administrative Procedure Act challenge, Revier Technologies, Inc. v. Loeffler, seeking to have the underlying regulations vacated outright.