California Court Of Appeal:[br]Municipal Utility District’s Public Contracting Affirmative Action Program Is Not Permissible Under California Constitution


The California Court of Appeal recently considered the issue of whether a municipal utility district’s public contracting scheme is impermissible under the California Constitution because it gives preferential treatment on the basis of race. (C&C Construction, Inc. v. Sacramento Municipal Utility District, (2004 Daily Journal D.A.R. 11,480, Cal.App. 3 Dist., Sept. 14, 2004))


The Sacramento Municipal Utility District (SMUD) implemented an affirmative action program that set race-based goals for including minority businesses in some of its public contracting activities. The program included a price advantage for contractors in proposals submitted by businesses owned by African-Americans, Hispanic-Americans, and Asian-Americans; evaluations credit to contractors who obtain minority subcontractor participation; and outreach procedures to identify and include minority businesses in the contracting programs.

C&C Construction, Inc., a company that entered bids on SMUD contracts, filed a lawsuit against SMUD alleging that its affirmative action program violates the California Constitution because it gives preferential treatment to contractors on the basis of race. The trial court found that SMUD’s program violated section 31 of article I of the California Constitution.

Appellate Court Decision

Section 31, subdivision (a), provides that the State of California and its political subdivisions shall not discriminate against, or give preferential treatment to, an individual or group on the basis of race in public contracting. However, section 31, subdivision (e) allows for race-based governmental action if such action is necessary to obtain or maintain federal funding.

SMUD conceded that its affirmative action program applied race-based participation goals and evaluation credits. However, it argued that the affirmative action program fell within the exception contained in subdivision (e). The Court of Appeal found that SMUD failed to present sufficient evidence that its race-based measures were necessary to maintain federal funding.

The Court concluded that, before imposing race-based measures, a governmental agency is not required to obtain a federal adjudication that mandates the implementation of race-based measures in order to maintain federal funding. Instead, “the governmental agency must have substantial evidence that it will lose federal funding if it does not use race-based measures and must narrowly tailor those measures to minimize race-based discrimination.”

Although SMUD received funding from the United States Departments of Energy, Defense, and Transportation, it failed to cite to any law or regulation which established that its affirmative action program was necessary to maintain the federal funding. Furthermore, the Court noted that SMUD had not attempted to utilize race-neutral remedies to eliminate disparities in its public contracting program. Therefore, the Court concluded that SMUD’s affirmative action program violates section 31, subdivision (a), and does not fall within the exception contained in subdivision (e).

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