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The Biden administration is segregating restaurant owners by race in prioritizing pandemic financial aid, barring white male restaurant owners from applying to a multi-billion dollar restaurant stimulus fund for three weeks, by which time the money may run out.
A lawyer said the move may be unconstitutional since the preferences are not remedying losses caused by government racial discrimination, but rather offsetting losses from a virus that ravaged the industry as a whole.
The Restaurant Revitalization Fund, a $28.6 billion pandemic fund targeted at the hard-hit restaurant industry, was approved this year in Democrats’ $1.9 trillion coronavirus relief bill and began accepting applications from restaurants around the country on May 3.
The fund is experiencing extremely high demand, but the Small Business Administration (SBA) said it will initially only select applications from restaurants and other eligible small businesses that are at least 51 percent owned by “women, veterans, or socially and economically disadvantaged individuals.”
Socially disadvantaged individuals are defined as “those who have been subjected to racial or ethnic prejudice or cultural bias because of their identity.” Economically disadvantaged individuals are defined as a subset of socially disadvantaged individuals “whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities as compared to others in the same business area who are not socially disadvantaged.”
Some industry experts expect the $28.6 billion fund could run out before the initial 21 days are up.
The National Restaurant Association expressed concern that the demand for relief is so high that the money would be depleted “in a matter of weeks — possibly only a few.”
“We will continue to work with the SBA and our members to ensure the application process goes smoothly, even as we’re alerting Congress to our concerns about the limits of the current funds,” Sean Kennedy, the association’s executive vice president for public affairs, told Restaurant Dive.
The program will not be able to grant aid to all eligible restaurants, Patrick Kelley, associate administrator for the SBA’s Office of Capital Access, told the Independent Restaurant Coalition last week. He recommended that owners apply on the first day.
Over the first two days of the program, 186,200 restaurants in all 50 states applied for relief. Of those, 97,600 were businesses owned by women, veterans, or “socially and economically disadvantaged individuals,” the White House said in a fact sheet. Some of the country’s smallest restaurants applied for aid, including 61,700 businesses with under $500,000 in annual pre-pandemic revenue.
Hans Bader, a longtime civil rights lawyer who worked in the federal Office for Civil Rights, said prioritizing minority groups in a broad manner, as the program does, is unconstitutional.
“To legally give minority groups a preference in an area, the government has to be seeking to remedy the present effects of its own past discrimination against those particular minority groups, in the area where they are being given a preference,” Bader told The Daily Wire, adding that the government discrimination must also be “recent” and “widespread.”
In this case, the American Rescue Plan, which launched the restaurant aid program, did not make any such finding that all minority-owned restaurants have been recently discriminated against by the federal government. A federal appeals court ruled nearly three decades ago that discrimination even 14 years old is too old to justify affirmative action and that isolated instances of discrimination do not justify a racial preference.
In addition, Bader said, the Supreme Court has ruled that “societal discrimination” is not a valid reason for the government prioritizing a particular group — only government discrimination can be cited.
Furthermore, women and minorities do not appear to be severely underrepresented in the restaurant industry.
The National Restaurant Association has said that the majority of restaurants were either owned or co-owned by women. “There are more women in restaurant management and ownership positions than virtually any other industry,” its CEO, Dawn Sweeney, said in 2017.
“Between 2007 and 2012, the number of Hispanic-owned restaurant businesses increased 51 percent, African American-owned restaurant businesses increased 49 percent, and the number of Asian-owned restaurants rose 18 percent,” the group said.
“It is not a white old-boy network, compared to most industries, so even if affirmative action were justified in other industries, it’s not in the restaurant industry,” Bader said.
The SBA did not respond to a request for comment.
In another twist, Asian-Americans are included in “socially disadvantaged individuals,” while elsewhere Asian-Americans have filed lawsuits alleging anti-Asian prejudice at elite universities due to their academic success.
One restaurant owner, Eric Nelson, owner of Crudo Nudo in Norfolk, Virginia, did not qualify for the priority period and told the Virginia-Pilot that he is “definitely wondering if there will be money after the 21 days.”
“That money will go to past due rent, bills, unpaid invoices, and keeping the employees paid. … It’s going to help get us back on our feet,” he told the paper.