A new Personal Net Worth requirement for MBE/WBE certification is set to take effect in Kansas City, Missouri on October 1, 2019. It applies to everyone, and could have a significant impact.
On October 25, 2018, the Kansas City Council amended the rules that govern the City’s Minority & Women Business Enterprise Program (Chapter 3, Code of Ordinances, Sections 3-421 to 3-469). Most of the amendments went into effect on Nov. 5, 2018; however, some become effective at a later date. One such post-dated amendment is the addition of a Personal Net Worth requirement for MBE/WBE owners. See Sections 3-421(a)(34), (36), (47), and 3-461.
Under the new rules, as of October 1, 2019, in order to qualify for certification as an MBE or WBE, each individual owner’s Personal Net Worth must be equal to or less than the permissible Personal Net Worth amount determined by the U.S. Department of Transportation to be applicable to its DBE program. That threshhold is currently $1.32 million. Under the KCMO Code, Personal Net Worth is defined generally as “[t]he net value of the assets of an individual after total liabilities is deducted.” Section 3-421(a)(36). However, it excludes the individual’s ownership interest in the business that is seeking certification and also excludes the individual’s equity in his or her primary place of residence. It includes only the individual’s share of assets held individually or jointly with his or her spouse.
The KCMO Code is silent as to whether retirement assets must be included in the determination of Personal Net Worth. Under the Federal DBE rules, Personal Net Worth includes the present value of the individual’s retirement assets less the tax and interest penalties that would apply if distributed. It is unclear whether the Human Relations Department will require such assets to be included.
As of October 1, 2019, any business that seeks certification as an MBE/WBE under the KCMO Code must demonstrate by written documentation or affidavit that each owner’s Personal Net Worth does not exceed $1.32 million. Moreover, if a company is already certified as an MBE/WBE and does not meet the Personal Net Worth threshhold, it will be required to report the issue to the Human Relations Department. This is because the Code requires certified companies to provide notice of material changes within 30 days:
Once certified, an MBE/WBE must notify the department in writing within 30 calendar days of any change(s) in circumstances affecting the firm’s ability to meet ownership, control, or size requirements or any material change(s) in the information provided in the certification application process.
Section 3-461(o). If an MBE/WBE fails to provide timely notification of such changes, it can be deemed to have failed to cooperate and its certification may be revoked. Id.
We recommend that MBE/WBE owners begin looking at this Personal Net Worth issue now, and contact their counsel for advice on how it may impact the company’s ability to qualify for certification in Kansas City, Missouri.