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Wall St. and Business Wednesdays: High Court Allows Preferences For Builders by Greg Stohr


The Supreme Court refused Monday to question a federal program that funnels billions of dollars for highway construction to companies owned by racial minorities and women.

The justices, without comment, turned aside two challenges to the program by white-owned Minnesota and Nebraska companies. The Bush administration, which has opposed affirmative action in other contexts, defended the so-called set-asides.

The rules apply to more than $20 billion allocated by the Transportation Department to state and local agencies every year. The program, which requires that 10 percent of the money go to so-called disadvantaged business enterprises, has been under legal attack for more than a decade.

"This case presents questions of fundamental national importance," said an unsuccessful appeal filed by family-owned Gross Seed Co., which lost a contract for seeding work on a Nebraska project even though it was the low bidder at $255,000.

The issue of federal highway set-asides has come before the high court repeatedly in the past decade, starting with a 1995 case that laid out a demanding test for federal affirmative action programs. The justices said the Constitution's equal protection clause requires such programs to be "narrowly tailored" to meet a "compelling" interest.

The question in the latest case was whether the current version of the set-aside program meets that test. An appeals court in St. Louis said the policy was constitutional.

The Bush administration said the Transportation Department program is a remedial effort established by Congress to compensate for a long history of discrimination in the industry. Congress reauthorized the program in 1998 through a law known as the Transportation Equity Act for the 21st Century, or TEA-21.

Congress had evidence that minority- and woman-owned businesses "continue to suffer the effects of discrimination that adversely affect their ability to participate on an equal opportunity basis in highway construction," U.S. Solicitor General Theodore Olson said in a court filing.

The Supreme Court previously said federal agencies can use racial preferences to compensate for past discrimination against minority contractors.

The companies challenging the program said the remedial justification is a sham.

"Congress did not find discrimination when it enacted TEA- 21, nor did it even look for it," said Sherbrooke Turf Inc., a landscaping company based in Pelican Rapids, Minn.

Under federal rules, businesses are presumed to be disadvantaged if they are majority-owned by women, blacks, Hispanics, American Indians or Asian Americans. That presumption is rebutted for individuals with a personal net worth of more than $750,000, excluding ownership of the company and equity in a primary residence.

States must set percentage goals for disadvantaged contractors on projects funded with federal money. Nebraska had a goal of 11 percent participation by disadvantaged businesses in its fiscal year 2000 and 9.95 percent in fiscal 2001. Minnesota's goal was 11.6 percent in 2001.

The rules require states to try to reach their goals through race-neutral means before resorting to preferences for disadvantaged businesses.

"The regulations prohibit the use of quotas and permit set-asides only in the most egregious instances of otherwise irremediable discrimination," the Bush administration argued.

The administration urged the Supreme Court not to hear the appeals, saying lower courts have unanimously upheld the program.

The Supreme Court gave affirmative action a limited endorsement in its latest cases, two disputes over race-based admissions at the University of Michigan. The justices said universities seeking to further campus diversity could consider race as part of an individualized review of applications.

In another business-related case Monday, the Supreme Court made it easier for people to go to bankruptcy court to get relief from education loans or other debts.

Justices sided with a former Tennessee student who claimed that she could not afford her $4,000 in state-backed education loans. The state argued that it could not be taken to federal bankruptcy court against its wishes. Justices agreed 7-2, though, to let Pamela Hood pursue her case.

States are ordinarily immune from lawsuits by private individuals, unless the state waives its immunity or unless Congress expressly overrides it. The high court dodged that question.

Chief Justice William Rehnquist, writing for the majority, said a bankruptcy court can decide the narrow question of whether a student loan debt is an undue hardship without implicating state immunity.

"It's a great relief for consumer debtors," said John Rao, attorney for the National Consumer Law Center.


Note: This article first appeared at Bloomberg News


Wednesday, May 19, 2004

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