Texas judge blocks termination of MWBE certification for state contracts

Texas Comptroller's Office

A Texas judge on Monday temporarily blocked acting state Comptroller Kelly Hancock's elimination of minority- and women-owned business enterprises (MWBE) from a Historically Underutilized Businesses (HUB) program for state contracts.

Travis County District Court Judge Amy Clark Meachum's order granting a temporary injunction said Hancock "lacks authority to determine the constitutionality of the HUB Act" and that "it is well settled law that the executive branch enforces the law but cannot alter pre-existing law."

She set a Nov. 9 trial date for a lawsuit filed in March by impacted businesses and a trade group.

In December, Hancock said rule changes — which eliminated race- and sex-based preferences for state contracts and focused the renamed Veteran Heroes United in Business program on service-disabled veteran-owned-and-operated businesses — were done to bring it "into alignment with the Texas and U.S. constitutions."

The lawsuit contends the acting comptroller unilaterally dismantled the HUB program with an emergency regulation "removing all Black, Hispanic, and women-owned businesses from the program, and reducing the number of certified businesses" from more than 15,000 to approximately 500.

Alphonso David, president and CEO of the Global Black Economic Forum and co-lead counsel for the plaintiffs, called the judge's order "a clear and unequivocal statement that the comptroller violated the law." 

"Judge Meachum affirmed what we have argued from the beginning: the executive branch cannot rewrite laws passed by the legislature," he said in a statement. "This is a victory for the rule of law and for the thousands of businesses whose livelihoods were put at risk."

The comptroller's office did not immediately respond to a request for comment. In his response to the lawsuit's filing in March, Hancock said the awarding of state contracts should be based on merit, not race or gender in violation of the U.S. and Texas Constitutions.

Hancock, a former state lawmaker, became the interim replacement for elected Comptroller Glenn Hegar, who left office in late June. Hancock, who will complete Hegar's term, lost the March 3 Republican primary election for comptroller to former state Sen. Don Huffines.

In January, Republican Attorney General Ken Paxton issued a non-binding legal opinion that said state and local government laws or practices giving preferences based on sex or race, including ones for MWBE's participation in bond contracts, are unconstitutional.

The attorney general's public finance division advised state and local government debt issuers they must disclose the use of MWBE programs for bond deals seeking required attorney general approval and certify that bond proceeds will not fund "any unconstitutional purposes, including payments made pursuant to unconstitutional (diversity, equity, and inclusion) programs and including any such DEI programs established by local ordinances or policies."  

The original HUB program had been cited in Texas Bond Review Board guidelines requiring state debt issuers to make good faith efforts to achieve 33% participation by certified MWBEs in bond underwriting. The current guidelines for negotiated sales say underwriters "should be able to show minority and women participation within their firms."