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'Set-asides' will take brunt of court ruling

THE BALTIMORE SUN

WASHINGTON -- In tightening the rules for federal affirmative action, the Supreme Court this week threatened the future of dozens of government programs dealing with everything from science scholarships to Navy computer contracts to businesses selling snacks in airports.

In all, the federal government spends an estimated $10 billion for affirmative action programs scattered across nearly every federal agency.

In a 5-4 decision issued Monday, the Supreme Court ruled that federal affirmative action programs must meet a stiff legal test to be considered constitutional. Ruling on a case stemming from a federal highway contracting job in Colorado, the court said affirmative action programs must meet a compelling governmental need and must be narrowly tailored to meet that need.

President Clinton, who had already ordered a government-wide review of affirmative action, said yesterday that the court had made it harder, but not impossible, to craft programs to assist minorities.

"The Supreme Court has raised the hurdle, but it is not insurmountable," Mr. Clinton said in his first public reaction to the court's ruling. "The constitutional test is now tougher than it was, but I am confident that the test can be met in many cases."

"I think it pretty well does away with minority set-asides by government agencies," said Barbara Mello, a constitutional law professor at the University of Baltimore School of Law. "I would say this is just the beginning."

Other court observers said it's too soon to assess the ruling's force and that it will take years of litigation before the impact is known.

University of Baltimore constitutional law professor Michael Meyerson said Monday's ruling "certainly shows a disfavor against affirmative action programs." But, he said, "the court is going out of its way to leave open the possibility that this program and other programs will be upheld."

Across government yesterday, officials were studying the decision to see how it might apply to their own programs.

The ruling would appear to have the most direct impact on set-aside programs in which the government steers a percentage of its purchases to firms owned by minorities or women.

$4.4 billion in set-asides

The Small Business Administration, acting on behalf of many government agencies, awarded $4.4 billion in set-aside contracts 2,200 minority-owned firms in 1994, according to the U.S. General Accounting Office.

"The program makes it easier in the initial stages for contractors to get enough revenue base, enough business to develop your management team, your technology team, to develop some competitive ability," said Fernando Galaviz, the Latino owner of an Arlington, Va., computer firm and vice chairman of a national association of minority-owned government contractors.

"There is no question that the large majority of firms would never have had an opportunity to even start the business if it weren't for the assistance of the program," Mr. Galaviz said. His own firm relies on federal contracts for about 80 percent of its business, he said.

The vast majority of SBA contracts were awarded without competitive bidding, the GAO said, and firms remain eligible for the SBA's so-called 8(a) program for up to nine years.

In a similar program, the Department of Defense seeks to award at least 5 percent of its contracting work to minority-owned businesses. Last year, the Pentagon awarded more than $6 billion to such firms, about half of it through the SBA.

Several contractors who have taken advantage of government programs said the ruling could be devastating.

Roosevelt J. LaBoo, president of DSI Enterprises, a downtown Baltimore construction firm that depends on federal affirmative action programs for 40 percent to 50 percent of its business, called the Supreme Court decision "a disastrous blow for minority contractors."

"The Supreme Court is going back to the future. The job economy starts to get scary and they take it out on the minorities," he said. "The majority of businesses in this country are not affected by the little bit of money that is set aside for these programs."

"The program was only beginning to help level the playing field, and now they're trying to destroy it."

Telecommunications

The Supreme Court decision may threaten preferences that minority-owned businesses have enjoyed in telecommunications.

Minority-owned firms, for instance, are given a boost through "qualitative enhancements" when competing against other applicants for an license from the Federal Communications Commission.

Similarly, minority companies benefit from a 25 percent discount on the prices they bid for potentially lucrative wireless frequencies during auctions conducted by the FCC.

Those firms that were successful bidders were also given an extended and more favorable interest rate for paying for the frequencies.

FCC Chairman Reed E. Hundt said in a speech yesterday that the next auction of frequencies would proceed as scheduled in August, but the deadline for applying would be extended to give bidders time to "digest" the court decision.

"Certainly the decision has substantial significance for our country's policies aimed at extending the benefits of the communications revolution to all Americans," he said.

Affirmative action requirements are laced throughout government. Some are more carrot than stick.

The Department of Housing and Urban Development, for example, "encourages" recipients of its grants to use banks owned by women or minorities.

The Federal Aviation Administration requires that airport operators who get federal funds set aside at least 10 percent of contracts for "consumer services to the public" for firms owned by a "socially and economically disadvantaged individual."

FAA spokesman Jeff Thal said it is too soon to say whether the court ruling will affect that program. "The way the decision is applied may have implications on the way we do business," he said. "Our lawyers are still evaluating the case."

Difficult to meet

Reginald Wilson, a scholar with the American Council on Education in Washington, said the court has established a standard that will be very hard to meet.

It's unclear, for example, whether the $9 million the National Science Foundation spends on minority students in the sciences would meet the court's new standard.

Such programs have grown in recent years as universities try to increase the number of women and minority students in disciplines such as engineering or physics.

"I think most of the programs will have to be regrouped or very carefully supported with data showing that it is a remedy that meets a particular need, and the recipients of that remedy have some sort of basis for receiving it," Mr. Wilson said.

Though the ruling affects only government programs, many minority business executives fear that private corporations will take it as a signal to drop their own affirmative action programs, said John F. Robinson, president of the National Minority Business Council in New York.

"This can have a far-reaching effect if the [Clinton] administration doesn't come out and make a firm statement on this," he said. "These programs need to be in place, and whatever it takes to reinforce them needs to be done before there is any erosion in these programs."

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