S.C. governor halts carve outs for minority-owned businesses in state agency contracts

COLUMBIA — South Carolina Gov. Henry McMaster signed an executive order last week aimed at ending quotas in state law regarding contracts for minority-owned businesses, citing Trump administration changes in federal rules.

The order directs state government agencies not to enter into any new contracts based on race. They’re instructed to essentially ignore decades-old sections in state law titled “assistance to minority businesses” — what the order calls “race-based procurement policy” — until the Republican-dominated Legislature can remove them through a new law next year.

“These policies rest on the false assumption that the solution to perceived historical wrongs is to racially discriminate against individuals in the present,” the order reads.

Recognizing that he can’t change state law on his own, McMaster stressed that he worked with the Legislature’s GOP leaders to draft legislation for the session that resumes in January — and that they’ve pledged to make passage a priority.

Until a new law is passed, McMaster contends he has the authority to stop agencies from following unconstitutional policies. His order applies to future contracts only.

Rep. John King called the joint effort by GOP leaders “reckless and revealing.”

“Removing set-asides and contracting protections isn’t about equality,” the Rock Hill Democrat said in a statement. “It’s about shutting the door to opportunity and gutting the pathways minority-owned businesses finally had to compete for generational wealth.”

Toothless laws

Agencies already ignore sections of law cited in McMaster’s order.

A law dating to 1981 requires each state agency to make a plan annually for spending 10% of its controllable budget with businesses certified as minority enterprises. Progress reports toward meeting that goal are due every quarter. The “controllable” amounts — what’s considered in agencies’ purview — range from a fraction of 1 percent to roughly half of an agency’s budget, according to the latest report compiled by the state’s minority affairs commission.

How much the 10% goal could tally across state government is unknown. It’s somewhere well north of $52 million — if agencies followed the law.

But they don’t: More than 40% of 114 agencies and public colleges listed in that report failed to turn in a plan at all last fiscal year. So, there’s no dollar amount given for their “controllable dollars.” One-third didn’t bother to turn in a single quarterly report.

Beyond that, 10% is a goal, not a requirement, which even agencies that did submit reports didn’t meet.

Agencies turning in nothing for 2024-25 include some of the state’s biggest, such as the University of South Carolina.

It’s unclear why. A spokesman for USC didn’t immediately return a call from the SC Daily Gazette.

Regardless, McMaster’s order ends that reporting — or at least, provides a reason not to until the Legislature makes it official.

“I’m directing these state agencies to not require that anymore,” McMaster told reporters. “I’m saying do not do this because it is in violation of the Constitution.”

According to his office, the law was likely originally needed to comply with federal requirements for funding. But the Trump administration reversed those mandates — citing a 2023 U.S. Supreme Court ruling declaring Harvard’s admissions policy on race unconstitutional in requiring an end to all diversity-related mandates in government.

“If we kept this in there, if we didn’t comply with the Constitution — as viewed by the Trump administration, as viewed by me and my lawyers here — if we didn’t abide, then our people would be subject to losing federal money,” McMaster said.

Another law McMaster pointed to applies only to the state Department of Transportation. It requires the agency to award at least 5% of its share of state revenue yearly to minority businesses through contracts of $250,000 or less.

That law dates to 1995, and the cost of highway construction has skyrocketed to the point that it isn’t feasible. The per-contract maximum is too low for current projects.

McMaster’s order does not affect the agency’s ability to contract with companies but gives clarity for handling an unworkable part of state law, said DOT Secretary Justin Powell.

A priority for next year

More may get wrapped into the to-be-filed legislation.

McMaster’s order also asks agency heads to alert the governor’s office by Jan. 9 — four days before the 2026 session starts — of any other regulations or policies for state contracting that involve considerations of race.

Both Senate President Thomas Alexander and House Speaker Murrell Smith backed McMaster’s order and said they’re confident their chambers will too. Both have GOP supermajorities.

“We are a nation and a state dedicated to the principle that ‘all men are created equal, endowed by their Creator,’ as reflected in the Constitution’s requirement of equal protection of the laws,” Alexander, of Walhalla, said in a statement. “When existing laws no longer align with that constitutional command, it is our duty to correct them.”

In April, the House passed a bill prohibiting state agencies, local governments and universities from violating federal discrimination laws with initiatives promoting diversity, equity and inclusion, or DEI. That bill also would have required private businesses with government contracts to certify they don’t violate federal discrimination laws.

The Senate, however, has yet to take up that measure.

Following the 82-32 vote in April, House Republicans trumpeted that bill as South Carolina leading the national anti-DEI movement by adopting the framework of executive orders signed by President Donald Trump banning DEI initiatives at the federal level.

Smith, R-Sumter, said Wednesday he’s proud of the House for already addressing the issue.

However, the promise of pre-filed legislation indicates the House will start over with a new bill.

“Discrimination is wrong, and its misguided use as a remedy is worse,” Smith said in a statement. “The House will address this when we return in January.”

During the last House debate, Democrats argued the loss of DEI programs would leave those who face economic or other disadvantages that more often impact minority populations without support to overcome hurdles not encountered by more affluent peers.

Democrats pledged to keep fighting next year.

“For decades, marginalized communities in this state were locked out – intentionally – from economic opportunity,” King continued in his statement. “Set-aside programs were one of the few tools ensuring that Black contractors, minority-owned businesses, and underserved communities could compete on something even close to a level playing field. Taking these protections away tells us exactly who this Governor and his legislative allies are fighting for – and who they’re fighting against.”

Originally published at: https://scdailygazette.com/2025/12/03/sc-governor-halts-carve-outs-for-minority-owned-businesses-in-state-agency-contracts/