gavel court justice colorado

A federal judge has temporarily blocked Colorado from using race as a factor in distributing COVID-19 relief to small businesses, after a white business owner filed a legal challenge to the state's grant program.

The order on Tuesday from U.S. District Court Judge William J. Martínez is in effect through Oct. 26, after which he will decide whether to halt the preference in state aid to minority-owned businesses on a longer-term basis. In response, the state suspended its planned awards to applicants, saying that the initial recipients all qualified for aid based on criteria other than race.

The suspension will also affect plaintiff Stephen E. Collins, whose application for relief the state had reportedly approved.

Following the judge's order, the Colorado Attorney General's Office filed a motion to dismiss the lawsuit from Collins, the white owner of event-planning company Resort Meeting Source. The state maintained that it had already decided to provide funding to Resort Meeting Source before Collins filed his lawsuit last week, and therefore he has suffered no injury or discrimination.

"At present, the relief payments program is undersubscribed, meaning there are fewer qualified applicants than available funds," wrote Assistant Attorney General Michael T. Kotlarczyk. "As a result, every applicant who applied for a grant and met the eligibility criteria in the statute and OEDIT’s program guidelines will receive a grant."

OEDIT is the Office of Economic Development & International Trade, which is administering the Disproportionately Impacted Business Grant program that Collins is challenging. The program stems from legislation the General Assembly passed this year to make $4 million available to businesses meeting certain criteria. For example, an eligible business may be in an economically distressed area, have diminished opportunities to access credit, or be minority owned.

The legislation, Senate Bill 1, modified a previous bill that originally used exclusively race-based criteria to award the $4 million. However, after a white man who owned a barbershop challenged the law, the General Assembly broadened eligibility.

"Four million out of 64 counties? I think if anybody needs to be offended, I think [minority business owners] should be offended that it’s so little," said Rep. Shane Sandridge, R-Colorado Springs, at the time.

A judge in April dismissed the barbershop owner's lawsuit because the state had yet to adopt any regulations to carry out the aid program.

But Collins filed his own federal complaint on Oct. 7, four days after the application period closed for the first round of business grants.

"Colorado’s COVID-19 relief program disfavors Plaintiffs based on a characteristic that the government is prohibited from considering: race," the lawsuit states. "Thus, Plaintiffs bring this civil rights action to vindicate their constitutional rights under the Equal Protection Clause of the Fourteenth Amendment and the right of all Colorado small business owners to equality before the law."

Collins contended that the grant program, with awards ranging from $1,500 to $10,000, is designed to give a racial preference to some businesses, making it less likely that he will have access to relief.

Martínez initially agreed, granting a temporary restraining order on Oct. 12 that prevents the state from enforcing the minority-owned business criterion. The judge emphasized that the state would need to demonstrate the grant program is narrowly tailored and serves a compelling governmental interest to be considered constitutional.

"[A]t this early stage of this proceeding, Plaintiffs have shown a substantial likelihood that Defendant will not be able to prove that there is a compelling government interest in remedying the past effects of racial discrimination," he wrote.

The state Office of Economic Development and International Trade was scheduled to announce its first round of grant awards the week of Oct. 18. But the Attorney General's Office indicated the state would delay the awards — including the $10,000 it says Collins would receive — until the legal matter is resolved.

Michael Landes, who developed OEDIT's guidelines for the grant program, said in a statement to the court that his office received 187 applications, but most of those were ineligible or failed to submit required documentation. None of the 11 businesses approved for grants ended up being a minority-owned business.

"Internal application review of Resort Meeting Source's application was completed on October 4th, prior to the lawsuit being filed. Resort Meeting Source's application was listed as recommended for approval," Landes stated.

Collins's company was selected because it satisfied two of the program's other criteria.

The aid to disproportionately impacted businesses is designed to cover revenue losses from the COVID-19 pandemic that other governmental relief programs have not addressed. In enacting SB1, lawmakers pointed to a September 2020 analysis from the Brookings Institution showing businesses in neighborhoods with majority-white populations were quicker to receive funding from the federal Paycheck Protection Program. The first months of the pandemic also saw far higher rates of small business closures among Black and Hispanic proprietors, according to the U.S. Securities and Exchange Commission.

Martínez ordered Collins to respond to the state's motion to dismiss by 2 p.m. on Thursday. Collins is being represented by the libertarian Pacific Legal Foundation. The organization also represented the white barbershop owner who previously challenged the race-based criteria.

The case is Collins et al. v. Meyers.

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