SBA reduces criminal history restrictions in one of its business development programs

We are very pleased to see that the U.S. Small Business Administration has taken a significant step toward ending discrimination against justice-affected small business owners in the programs it administers. In a new rule governing certification of veteran-owned businesses for preferential treatment in the award of VA contracts, the SBA has omitted a requirement that business owners must have “good character” to be certified.  This is a step we recommended in commenting on the rule when it was proposed last summer, and we are gratified that the SBA accepted our recommendation.

CCRC’s study of the SBA’s record-based restrictions has identified the “good character” requirement as that agency’s long-established way of weeding out people with a criminal history from the programs it administers, including business loans, disaster assistance, and federal contracting opportunities like the one at issue here. Typically, SBA operating procedures give agency staff broad discretion to deny assistance to justice-affected business owners based solely on untested assumptions about perceived risk and desert embodied in the “good character” requirement. Broad inquiries into criminal history on application forms deter many from even applying.

It was therefore a matter of concern to see a “good character” criterion included when the SBA proposed its veteran-owned business rule last summer. The good news was that this offered a first chance for public comment on how this criterion limits opportunities for justice-affected business owners. And it appears that it has led to a very favorable outcome that augurs well for future SBA criminal record reforms.

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SBA proposes rules affecting businesses owned by veterans with a record

Over the past two years, CCRC has been studying the restrictions imposed by the U.S. Small Business Administration on loans to small businesses owned by justice-affected individuals. Many of those same restrictions, which are grounded in an operating policy that recipients of federal assistance have “good character,” also apply by formal rule in the SBA’s business development program under 8(a) of the Small Business Act.

For more than half a century, the so-called “8(a) program” has earmarked federal contracts for businesses owned by socially or economically disadvantaged individuals, and it has been a key driver of community development in urban areas. But the program’s “good character” test has historically excluded from participation many if not most business owned or managed by individuals with a criminal history. The 8(a) program also has satellite programs, including ones offering preferential treatment to businesses owned by women and veterans, though it is less clear whether these programs have similar criminal history restrictions.

Recently, Congress returned responsibility for certifying program eligibility for veteran-owned business from the VA to the SBA, and the SBA has now published proposed certification rules for public comment. These proposed rules offer a first chance to speak to the SBA’s “good character” requirement.

CCRC worked with the Washington Lawyer’s Committee for Civil Rights to draft comments on the proposed rule that are critical of the SBA’s vague and open-ended test of business owners’ “character” that results in disqualification of many deserving individuals from this and other federal programs administered by the SBA. Those comments, which are joined by 24 other organizations, were filed on August 5 and are available here.

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Forum on governmental barriers to small business financing for people with a criminal history

We are delighted to announce a program where a panel of experts will discuss the barriers faced by small business owners and managers with a criminal history in obtaining government-sponsored loans.

This virtual program will take place on November 18 from 12:00-1:15pm (EST), and is sponsored by the Georgetown Center for Business and Public Policy as part of its Georgetown on the Hill series. Register for the event here.

The program–which we helped organize along with Georgetown’s PIVOT Program–will focus on the broad criminal history restrictions in rules and policies of the U.S. Small Business Administration. These policies came to the public’s attention in the early days of the pandemic, when thousands of small businesses were denied PPP and other relief authorized by the CARES Act. While many of these restrictions were eventually rolled back in response to widespread criticism, similar restrictions in the SBA’s general lending programs remain, restrictions that influence state and private lending as well. The program on November 18 will explore the origins, scope, and justification for these restrictions.

Panelists include a former high-ranking SBA official, a small business owner who successfully challenged the PPP restrictions in court, a scholar who has argued that the SBA restrictions contravene civil rights law, and the CCRC’s Deputy Director David Schlussel, who contributed to the bipartisan campaign in the spring of 2020 that led the SBA to abandon many of its exclusionary policies.

We hope that everyone interested in collateral consequences, notably those related to access to business capital, will register for the program. The Georgetown announcement describing the program is reproduced below.

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Federal policies block loans to small business owners with a record

Starting a small business is increasingly recognized as a pathway to opportunity for individuals with an arrest or conviction history—particularly given the disadvantages they face in the labor market. An estimated 4% of small businesses in the United States have an owner with a conviction (1.5% have a felony conviction). Small businesses provide “a vital opportunity for those with a criminal record to contribute to society, to earn an honest profit, and to give back to others.” They also frequently employ people with a record and help reduce recidivism. A growing number of organizations and government programs are devoted to supporting individuals with a record in building their own businesses.

Yet many structural barriers remain, including a series of little-known federal regulations and policies that impose broad criminal history restrictions on access to government-sponsored business loans, notably by the U.S. Small Business Administration (SBA).  A recent article illustrates the steep challenges faced by business owners with a record by telling the stories of several entrepreneurs who were either denied an SBA loan or were discouraged from even trying for one because of a dated felony conviction.  One of those entrepreneurs comments: “You might do five years, ten years, one year, but you pay for it until you’re in the grave.”

To illuminate and help reduce these barriers, our organization is working to develop a new “Fair Chance Lending” project. We hope to show that—rather than broadly exclude individuals with a criminal history—officials should draw record-based restrictions as narrowly as feasible, facilitate access to resources, and celebrate entrepreneurial efforts, consistent with growing national support for reintegration and fair chances in civil society.

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New Jersey puts “fair chance housing” on the national agenda

People with a record frequently experience challenges in obtaining or maintaining housing. For those who have been incarcerated, on supervision, charged, and/or arrested, the background check for rental applications can be a persistent obstacle. Lack of stable housing is a major roadblock to successful reintegration into the community or the pursuit of social and economic opportunities. It is therefore encouraging that states have begun to enact laws limiting record-based disqualifications in housing decisions.

On June 18, New Jersey Governor Phil Murphy signed into law the Fair Chance in Housing Act, the most rigorous state legislation to date limiting consideration of criminal records in housing decisions. During a ceremony to commemorate Juneteenth, he described the new law as a step to “level what has been for too long an uneven playing field when it comes to access to housing,” explaining that it will bar landlords from asking about criminal history in most instances. The NAACP New Jersey State Conference, Latino Action Network, Fair Share Housing Center, and New Jersey Religious Action Center of Reform Judaism led organizational advocacy for the measure. Senator Troy Singleton, one of the bill’s primary sponsors, cited the “staggering amount of data on the national level that shows securing housing is one of the key barriers to reducing recidivism,” according to the New York Times. “This measure will allow those who have paid their debt to society to move forward with their lives in a productive manner.” Another sponsor, Assemblyman Benjie Wimberly, noted that “We’re fighting generational poverty, homelessness, and hopelessness through social justice reform measures such as this one.”

With New Jersey’s legislation—following on the heels of laws enacted in 2019 in Colorado, Illinois, and New York, legislation in D.C. in 2017, and a slew of local ordinances since 2016— “fair chance housing” has arrived on the national reintegration agenda. While many states have adopted reforms that limit the use of criminal records in employment and occupational licensing, until these recent developments housing does not appear to have been a priority for lawmakers, at least at the state level.

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People with records excluded from growing occupations

People with arrest and conviction records continue to demand that employers and policymakers remove unfair barriers to work. Their demands have spurred much-needed legislative change, including “fair chance licensing” laws that reform restrictions on working in occupations requiring a government license or certification. Such changes are crucial to achieving racial equity. Decades of biased policing and charging have left Black and Latinx communities with disproportionately high rates of records, thus compounding the economic disinvestment and other disadvantages resulting from structural racism.

In support of fair chance licensing advocacy efforts, the National Employment Law Project (NELP) recently developed a set of short fact sheets evaluating the legal barriers that face people with records who desire to work in growing occupations in eight states–Colorado, Delaware, Indiana, Louisiana, Michigan, Ohio, Oregon, and Tennessee. Given the confusing tangle of statutory and regulatory restrictions in most states, focusing on growing professions in high-demand industries may prove to be an important strategy for state advocates who seek to maximize job opportunities for people with records.

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Legislative Report Card: “The Reintegration Agenda During Pandemic”

CCRC’s new report documents legislative efforts in 2020 to reduce the barriers faced by people with a criminal record in the workplace, at the ballot box, and in many other areas of daily life. In total, 32 states, D.C., and the federal government enacted 106 bills, approved 5 ballot initiatives, and issued 4 executive orders to restore rights and opportunities to people with a record.

Our Legislative Report Card recognizes the most (and least) productive state legislatures last year. Hands down, Michigan was the Reintegration Champion of 2020 with 26 new record reform laws, while Utah was runner-up, and seven other states were commended for their work.

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How Utah Got Automatic Expungement

Editor’s note: We are pleased to publish this fascinating account of how one state transformed its record relief system in little more than a year from a standing start, written by a person who had a central role in the transformation.     

In March of 2019, Utah Governor Gary Herbert signed HB 431, Utah’s Clean Slate law.  At the time, this made Utah the third state in the nation to pass a law automating the criminal record expungement process.  That law went into effect on May 1, 2020, but due to COVID-19, implementation efforts were delayed.  Several months later, implementation is back on track, and it is now anticipated that Utah’s state agencies will begin clearing court and repository records of non-convictions and qualifying misdemeanor convictions by the end of March. Preliminary estimates suggest that hundreds of thousands of people across the state will have their records expunged automatically.

What follows is a story about how Utah, one of the reddest states in the nation, came to adopt such a generous and efficient record relief system. As someone who was involved in that process from the beginning, I hope it will be helpful to others seeking to push their own states in that direction.

The Case for Clean Slate

Perhaps the most tragic thing about the number of people struggling with the collateral consequences of a criminal record is that, in many states, so many are eligible to clear their records but so few ever make it through the process.  The petition-based systems that exist in most states are costly, confusing, and cumbersome.  Utah is no exception.

While Utah’s eligibility criteria for expungement are quite generous (allowing for multiple felony and misdemeanor records to be expunged), the expungement process is expensive and time-consuming.  In most cases, individuals must hire an attorney to understand the complex eligibility criteria and procedural requirements. Then they must apply for and obtain from the Utah Bureau of Criminal Identification (BCI), a “certificate of eligibility,” which expires after 90 days and involves additional cost. Then they must travel to several municipal courthouses across the state to file their paperwork in person, and potentially go back to court later for a full hearing before a judge if either the prosecutor or the victim objects. From start to finish, the process can take more than a year to complete.  As a result, only around 2,000 expungement petitions are filed statewide each year, which represents a small percentage of those who are eligible.

The Path to Clean Slate

Utah’s Clean Slate story starts with jobs.  In 2018, Utah’s unemployment rate was under 3%, one of the lowest rates in the nation.  I remember sitting in the back of courtroom, listening to a judge ask a defendant whether he worked.  The individual said no, and the judge said, “Well why not?  In this economy, if you can breathe, you can find a job.”  But that wasn’t quite true.  While jobs were plentiful, one thing was still keeping people out of the work force: criminal records.

In December 2017, I was working as the Criminal Justice Advisory Council Director for Salt Lake County.  I received a phone call from the Department of Workforce Services, with a request to put on a criminal record expungement workshop for job seekers.  The Department explained that while Utah’s economy was one of the best in the nation, criminal records continued to be a huge barrier to employment.

In my former life, I was a public defender, and had some experience with criminal record expungement work, since Utah has offered expungement on a fairly broad basis for several decades. I told the Department that I did not think that a workshop telling people how to navigate Utah’s complicated petition-based expungement process was going to be very effective, nor did I think that the target audience was likely to have the resources necessary to navigate it. But I was excited about the interest and wanted to do something.  Instead, I asked whether the Department would be interested in trying to do something different: putting on an “Expungement Day” event.  Unlike other expungement clinics, the goal of “Expungement Day,” would be to bring the lawyers, courts, criminal repository, and community partners into one room, and work together to try to streamline the criminal record expungement process into a single day, allowing anyone who showed up to leave with a clean record.

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“The Reintegration Agenda During Pandemic: Criminal Record Reforms in 2020”

In each of the past five years, CCRC has issued an end-of-year report on legislative efforts to reduce the barriers faced by people with a criminal record in the workplace, at the ballot box, and in many other areas of daily life.[i] These reports document the progress of what has become a full-fledged law reform movement to restore individuals’ rights and status following their navigation of the criminal law system.

Our 2020 report, linked here, shows a continuation of this legislative trend. While fewer states enacted fewer laws in 2020 than in the preceding two years, evidently because of the disruptions caused by the pandemic, the fact that there was still considerable progress is testament to a genuine and enduring public commitment to a reintegration agenda.

In 2020, 32 states, the District of Columbia, and the federal government enacted 106 legislative bills, approved 5 ballot initiatives, and issued 4 executive orders to restore rights and opportunities to people with a criminal record.

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CCRC research featured in Florida felony voting case briefs

Last week, we published our amicus brief in an appeal about the constitutionality of Florida’s system for restoring the vote to people with felony convictions.  We urged the Eleventh Circuit to affirm a district court decision that Florida’s “pay-to-vote” system is unconstitutional, relying on our research report showing that few states have as restrictive a scheme as Florida’s.  Other groups also weighed in, including 19 states and D.C. and several organizations that draw on CCRC’s research to argue in favor of the decision below.  CCRC board members Jack Chin and Nora Demleitner joined a group of 93 law professors who also argued in favor of the district court’s determination that Florida’s scheme is unconstitutional.

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