Do disability-owned businesses count as Texas HUBs (historically underutilized businesses)?

Plain-English summary

Texas runs a "historically underutilized business" (HUB) program that pushes state agencies to steer a share of their contracts to disadvantaged-owned businesses. The General Services Commission, which certifies HUBs, asked the Attorney General whether it could write a rule treating businesses owned by people with disabilities as HUBs. The answer was no.

The HUB definition in article 601b, section 1.02(3), required two things of the owners. They had to be "socially disadvantaged because of their identification as members of certain groups, including black Americans, Hispanic Americans, women, Asian Pacific Americans, and Native Americans," and they had to have "suffered the effects of discriminatory practices or similar insidious circumstances over which they have no control." The office accepted that people with disabilities might well satisfy the second requirement. The problem was the first. The office read the listed "groups" to be groups defined by gender, race, or ethnicity, and concluded the legislature did not mean the word "group" to stretch to people identified by disability.

Several things drove that reading. Disabilities appear nowhere in section 1.02(3) or the certification statute, section 1.03. The reporting provision in section 1.03 told the commission to categorize HUBs "by sex, race, and ethnicity," which would have been odd if other groups counted. The legislative history mentioned only gender, race, and ethnicity. And the 1991 and 1993 appropriations acts defined HUBs the same way, in terms of women and certain minority groups. Putting that together, the office applied the settled rule that an administrative agency can adopt only rules authorized by and consistent with its statute (citing Texas Fire & Casualty Co. v. Harris County Bail Bond Bd.). A rule adding disability-owned businesses would go beyond the statute, so the commission could not do it by rule.

The office was careful to leave the door open for the legislature. It said lawmakers were free to amend section 1.02(3) to include disability-owned businesses if they chose, and that such an amendment would not clash with the other provisions the commission had asked about, sections 3.20, 3.22, and 4.15 of article 601b and chapters 94 and 122 of the Human Resources Code. Those provisions deal with state purchases from nonprofit agencies that train people with disabilities and with related licensing, not with for-profit businesses owned by people with disabilities, so there was no conflict.

Currency note

This opinion was issued in 1995. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

The HUB program has since been recodified out of V.T.C.S. article 601b and amended, and the related Human Resources Code provisions have changed over the years. The eligible-group definitions and the agency that administers the program may differ today. Read this page for how the office read the statute as it stood in 1995, and check current law before relying on who qualifies as a HUB now.

What the opinion meant for those who asked

For the General Services Commission: The opinion told the commission it lacked authority to add disability-owned businesses to the HUB definition by rule, because the statute limited HUB status to owners disadvantaged as members of gender, race, or ethnicity groups.

For businesses owned by people with disabilities: Under the statute as written in 1995, they did not qualify as HUBs, even if their owners had experienced discrimination, unless they also fit one of the listed gender, race, or ethnicity groups.

For the legislature: The opinion noted lawmakers could amend section 1.02(3) to include disability-owned businesses, and that such a change would not conflict with the existing disability-related provisions in article 601b or the Human Resources Code.

Common questions

Did disability-owned businesses qualify as Texas HUBs in 1995?
No. The opinion read the HUB definition to cover owners disadvantaged as members of groups defined by gender, race, or ethnicity, and concluded disability was not among them.

Why couldn't the General Services Commission just add disability by rule?
Because an agency can adopt only rules consistent with its statute. The office concluded the HUB statute did not authorize extending the definition to disability-owned businesses, so a rule doing so would be inconsistent with the law.

What did the AG point to in reaching that conclusion?
The text of sections 1.02(3) and 1.03, the requirement to report HUBs "by sex, race, and ethnicity," the legislative history, and the matching definitions in the 1991 and 1993 appropriations acts, all of which spoke only in terms of gender, race, and ethnicity.

Could the law be changed to include disability-owned businesses?
Yes. The opinion said the legislature was free to amend the statute, and that doing so would not conflict with the other article 601b or Human Resources Code provisions on disability.

Background and statutory framework

Article 601b governed state purchasing, and its HUB provisions were added in 1991 and amended in 1993 (Act of May 23, 1991, 72d Leg., ch. 677; Act of May 19, 1993, 73d Leg., ch. 684). Section 1.02(3) defined "historically underutilized business" by reference to owners who are socially disadvantaged as members of listed groups and who have suffered discrimination; section 1.03 required the commission to certify HUBs and to compile and categorize contracting data "by sex, race, and ethnicity"; and section 3.10(b) set a good-faith goal of awarding at least 30 percent of contract value to HUBs. The office treated the appropriations-act definitions (General Appropriations Act, 72d Leg., 1st C.S., ch. 19; 73d Leg., R.S., ch. 1051) as confirming the gender/race/ethnicity reading, while noting those provisions do not create substantive law.

The decisive legal principle was the limit on agency rulemaking: an agency "can adopt only such rules as are authorized by and consistent with [its] statutory authority," Texas Fire & Casualty Co. v. Harris County Bail Bond Bd., 684 S.W.2d 177 (Tex. App.-Houston [14th Dist.] 1984, writ ref'd n.r.e.). Finally, the office distinguished the other provisions the commission asked about, sections 3.20, 3.22, and 4.15 of article 601b and chapters 94 and 122 of the Human Resources Code, which address state purchases from nonprofit agencies serving people with disabilities (for example, the preference for products of workshops training people with disabilities, and the purchase of blind-made goods through the relevant commission, see Human Resources Code § 122.004(a)), not for-profit businesses owned by people with disabilities. A legislative amendment adding disability-owned businesses to the HUB definition would therefore not be inconsistent with those provisions.

Citations

Statutory and other provisions discussed:

• V.T.C.S. art. 601b, § 1.02(3) (definition of "historically underutilized business"); § 1.03 (certification and reporting; § 1.03(g) reporting by sex, race, and ethnicity); § 3.10(b) (30 percent good-faith goal)
• V.T.C.S. art. 601b, §§ 3.20, 3.22, 4.15 (purchases from and licensing related to organizations serving people with disabilities)
• Tex. Human Resources Code chs. 94, 122; § 122.004(a) (blind-made goods and services)
• Act of May 23, 1991, 72d Leg., ch. 677 (adding the HUB provisions); Act of May 19, 1993, 73d Leg., ch. 684 (amending them)
• General Appropriations Act, 72d Leg., 1st C.S., ch. 19, pt. V; 73d Leg., R.S., ch. 1051, pt. V (appropriations-act HUB definitions and reporting)

Cases discussed:

• Texas Fire & Casualty Co. v. Harris County Bail Bond Bd., 684 S.W.2d 177 (Tex. App.-Houston [14th Dist.] 1984, writ ref'd n.r.e.)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/dan-morales/dm-0328
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1995/dm0328.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain (including dropped subparts and a truncated footnote) — the linked PDF is authoritative.

Office of the Attorney General
State of Texas

DAN MORALES
ATTORNEY GENERAL

March 9, 1995

Mr. Carl Mullen
Deputy Director
General Services Commission
P.O. Box 13047
Austin, Texas 78711-3047

Opinion No. DM-328

Re: Whether the General Services Commission has the authority to promulgate a rule to deem businesses owned by individuals with disabilities as "historically underutilized businesses" as that term is defined in section 1.02(3) of article 601b, V.T.C.S. (RQ-721)

Dear Mr. Mullen:

On behalf of the General Services Commission (the "commission"), you ask whether the commission has the authority to promulgate a rule to deem businesses owned by individuals with disabilities as "historically underutilized businesses" as that term is defined in section 1.02(3) of article 601b, V.T.C.S. Section 1.02(3) defines the term "historically underutilized business" to mean a business that is owned (or, in the case of a corporation or partnership, at least fifty-one percent owned) by one or more persons who

are socially disadvantaged because of their identification as members of certain groups, including black Americans, Hispanic Americans, women, Asian Pacific Americans, and Native Americans, and have suffered the effects of discriminatory practices or similar insidious circumstances over which they have no control.

V.T.C.S. art. 601b, § 1.02(3)(A)(i).[1]

Section 1.03 of article 601b requires the commission to "certify businesses that are historically underutilized businesses." Id. § 1.03(a). Section 1.03 also requires the commission and state agencies to compile information regarding contracts awarded to historically underutilized businesses. Id. § 1.03(c) - (d), (g), (k), (m). The commission is required to offer assistance to historically underutilized businesses regarding state procurement procedures and opportunities and to encourage state agencies to use historically underutilized businesses. Id. § 1.03(i), (p). Section 3.10(b) of article 601b requires the commission and state agencies to "make a good faith effort to assist historically underutilized businesses to receive not less than 30 percent of the total value of all contract awards . . . that the commission or other agency expects to make during a fiscal year." Both section 1.02(3) and section 1.03, the relevant provisions here, were enacted by the legislature in 1991 and amended in 1993. See Act of May 23, 1991, 72d Leg., R.S., ch. 677, §§ 1 - 2, 1991 Tex. Sess. Law Serv. 2457, 2457-58 (adding sections 1.02(3) and 1.03); Act of May 19, 1993, 73d Leg., R.S., ch. 684, §§ 1, 3, 1993 Tex. Sess. Law Serv. 2540, 2540-41 (amending sections 1.02(3) and 1.03).

Having reviewed article 601b and its legislative history, we conclude that the commission does not have the authority to promulgate a rule deeming businesses owned by individuals with disabilities as "historically underutilized businesses" as that term is defined in section 1.02(3) and used in section 1.03 of article 601b, V.T.C.S. The definition of the term "historically underutilized business" in section 1.02(3) refers to persons with two characteristics: first, persons "who are socially disadvantaged because of their identification as members of certain groups, including black Americans, Hispanic Americans, women, Asian Pacific Americans, and Native Americans," and, second, persons who "have suffered the effects of discriminatory practices or similar insidious circumstances over which they have no control." Although individuals with disabilities may certainly have the latter of these two characteristics, we believe that the legislature did not intend for the term "group" used in describing the first characteristic to embrace persons identified as members of groups other than those defined by gender, race, or ethnicity.

This conclusion is based on our review of both article 601b and the legislative history of the historically underutilized business provisions. First, individuals with disabilities are mentioned nowhere in section 1.02(3) or 1.03. Subsection (A)(i) of section 1.02(3) refers solely to persons identified as members of groups defined by gender, race, or ethnicity. Furthermore, subsection (g) of section 1.03 requires the commission, in cooperation with the comptroller and state agencies, to "categorize each historically underutilized business that is included in a report under this section by sex, race, and ethnicity." We believe that if the legislature had intended persons identified as members of groups other than those defined by gender, race, and ethnicity to qualify as historically underutilized businesses that it would have prescribed other, or at least broader, reporting categories. In addition, the legislative history is devoid of any references to persons identified as members of groups other than those defined by gender, race, and ethnicity. See, e.g., House Research Organization, Bill Analysis, H.B. 799, 72d Leg. (1991); see also House Special Comm. on Bus. Owned by Women or Minorities, Interim Report to the 71st Texas Legislature (1989).[2]

Finally, we note that the 1991 and 1993 appropriations acts contain provisions regarding state contracts with historically underutilized businesses applicable to any appropriation to a state agency. The 1993 appropriations act defines the term "historically underutilized business" to mean:

a corporation formed for the purpose of making a profit in which at least 51 percent of all classes of the shares of stock or other equitable securities are owned by one or more persons who have been historically underutilized because of their identification as women or as members of certain minority groups, including Black Americans, Hispanic Americans, women, Asian Pacific Americans, and Native Americans who have suffered the effects of discriminatory practices or similar insidious circumstances over which they have no control.

General Appropriations Act, 73d Leg., R.S., ch. 1051, pt. V, § 101(2)(a), 1993 Tex. Sess. Law Serv. 4521, 5379. The definition in the 1991 appropriations act is similar. See General Appropriations Act, 72d Leg., 1st C.S., ch. 19, pt. V, § 106(2)(a), 1991 Tex. Sess. Law Serv. 365, 1042. The 1993 appropriations act also provides that it is the intent of the legislature that state agencies report certain information about state contracting to the General Services Commission "classified by minority group status as defined in subsection 2.a above and by gender." General Appropriations Act, 73d Leg., R.S., ch. 1051, pt. V, § 101(8)(a), 1993 Tex. Sess. Law Serv. 4521, 5380. Although these appropriations act provisions are not intended to create substantive law,[3] we believe it is significant that they too describe and discuss historically underutilized businesses solely in terms of businesses owned by persons identified as members of groups defined by gender, race, and ethnicity.

In conclusion, it is a well-established legal principle that an administrative agency "can adopt only such rules as are authorized by and consistent with [its] statutory authority." See Texas Fire & Casualty Co. v. Harris County Bail Bond Bd., 684 S.W.2d 177, 178 (Tex. App.-Houston [14th Dist.] 1984, writ ref'd n.r.e.). Because the term "historically underutilized business" as defined by section 1.02(3) is limited to businesses owned by persons identified as members of groups defined by gender, race, or ethnicity, we must conclude that the commission is not authorized to promulgate a rule to deem businesses owned by individuals with disabilities as "historically underutilized businesses." Such a rule would be inconsistent with the statute.

Of course, the legislature is free to amend section 1.02(3) to include businesses owned by individuals with disabilities within the definition of historically underutilized businesses if it determines such an amendment is appropriate. In this regard, we note that we do not believe that such an amendment would be inconsistent with sections 3.20, 3.22, and 4.15 of article 601b or chapters 94 and 122 of the Human Resources Code, the other provisions about which you inquire. These provisions pertain to state purchases of goods and services from nonprofit agencies and other organizations that train individuals with disabilities or to the licensing of certain persons to operate certain state facilities.[4] None of these provisions pertain to state contracting with for-profit businesses owned by individuals with disabilities.

SUMMARY

The General Services Commission does not have the authority to promulgate a rule to deem businesses owned by individuals with disabilities as "historically underutilized businesses" as that term is defined in section 1.02(3) of article 601b, V.T.C.S., because the legislature did not intend that term to refer to businesses other than those owned by persons who are socially disadvantaged because of their identification as members of groups defined by gender, race, or ethnicity.

DAN MORALES
Attorney General of Texas

JORGE VEGA
First Assistant Attorney General

SARAH J. SHIRLEY
Chair, Opinion Committee

Prepared by Mary R. Crouter
Assistant Attorney General

[1] Section 1.02(3) in its entirety provides as follows:

(A) a corporation formed for the purpose of making a profit in which at least 51 percent of all classes of the shares of stock or other equitable securities are owned by one or more persons who:

(i) are socially disadvantaged because of their identification as members of certain groups, including black Americans, Hispanic Americans, women, Asian Pacific Americans, and Native Americans, and have suffered the effects of discriminatory practices or similar insidious circumstances over which they have no control; and

(ii) have a proportionate interest and demonstrate active participation in the control, operation, and management of the corporation's affairs;

. . . .

(C) a partnership formed for the purpose of making a profit in which at least 51 percent of the assets and interest in the partnership is owned by one or more persons who:

(i) are described in paragraph (A)(i) of this subdivision; and

(ii) have a proportionate interest and demonstrate active participation in the control, operation, and management of the [partnership's] affairs;

(D) a joint venture in which each entity in the joint venture is a historically underutilized business under this subdivision; or

(E) a supplier contract between a historically underutilized business under this subdivision and a prime contractor under which the historically underutilized business is directly involved in the manufacture or distribution of the supplies or materials or otherwise warehouses and ships the supplies.

(Subpart (B) appears to have dropped out of the scan.)

[2] The 1991 legislation was described at a hearing before the House Committee on State Affairs by its author as coming out of this interim committee. Hearings on H.B. 799 Before the House Comm. on State Affairs, 72d Leg. (March 18, 1991) (testimony of Representative Linton).

[3] Both appropriations act provisions regarding historically underutilized businesses contain the following language: "This section is an expression of the intent of the Legislature and does not impose a duty not already provided for by general law or negate a power granted by general law." See General Appropriations Act, 72d Leg., 1st C.S., ch. 19, pt. V, § 106(3), 1991 Tex. Sess. Law Serv. 365, 1043; General Appropriations Act, 73d Leg., R.S., ch. 1051, pt. V, § 101(3), 1993 Tex. Sess. Law Serv. 4521, 5379.

[4] Section 3.20 of article 601b provides that "products of workshops, organizations, or corporations whose primary purpose is training and employing mentally retarded or physically handicapped persons . . . shall be given preference if they meet state specifications as to quantity, quality, and price." Similarly, section 3.22 provides that the competitive bidding provisions of article 601b are not applicable "to state purchases of blind-made goods or services offered for sale to state agencies as a result of efforts made by the Texas Commission on Purchases of Blind-Made Goods and Services" created by chapter 122 of the Human Resources Code. Section 122.004(a) of the Human Resources Code makes it clear that "blind-made goods and services" refers to goods and services offered for sale by nonprofit agencies. (The remainder of this footnote is cut off in the scan; see the linked PDF.)