The Trump Administration has used this government shutdown as an opportunity to combine two of its goals into one action. First, bringing to fruition an ongoing but stealthy attempt to repeal administratively the longstanding ten percent set-aside of federal highway and mass transit contracts and subcontracts for “disadvantaged business entitles” (DBEs) including minority-owned and women-owned businesses. Second, finding a new way to put the screws to big cities with Democratic leaders.

DBE rule changes

First, the fight to change the nature of the DBE program, which the Trump Administration has been waging all year but has not issued a press release about until yesterday.

Some kind of percentage set-aside of federal public works construction contracts for DBEs dates back to the 1977 public works stimulus act and was then incorporated into highway and transit contracting law in the 1982 reauthorization law, and reiterated in every reauthorization law since then (the 1987, 1991, 1998, 2005, 2012, 2015, and 2021 acts, and their various short-term extensions).

(That 1977 law is also the same place that Buy America rules for federal transportation contracts first showed up, and is also  the same place that contractual rules against hiring undocumented immigrants also first showed up – see the second half of this article for the full story).

The DBE statute was never codified in title 23 or title 49 – instead, it was in the section of each reauthorization law that provided authorizations of new funding. The current version is section 11101(e) of the Infrastructure Investment and Jobs Act of 2021, which says “Except to the extent that the Secretary determines otherwise, not less than 10 percent of the amounts made available for any [authorized highway and mass transit program] shall be expended through small business concerns owned and controlled by socially and economically disadvantaged individuals.”

The definition of “socially and economically disadvantaged individuals” is defined in 15 USC 637(d) to include women, veterans, “Black Americans, Hispanic Americans, Native Americans, Asian Pacific Americans, and other minorities…”

Presumptive race-based preference programs (in hiring, in college admissions, etc.) have always been anathema to traditional conservatives and MAGA conservatives alike. The war against race-based college admissions has been public and well-documented. The war against the presumption that any minority-owned or female-owned small business is disadvantaged has been going on more quietly this year.

In September 2024, a federal court in Kentucky granted a pavement milling company and a trucking company an injunction against enforcement of the DBE rule by USDOT on the grounds that the simple presumption that minority and women-owned businesses are ipso facto disadvantaged is unconstitutional. It did not make news because it was not a universal (nationwide) injunction – DOT agreed at the time not to enforce the DBE rule on projects where those two companies were bidding until appeals courts sorted the whole thing out. Because the ruling only applied to those two companies, it was not well-known.

This year the Trump Administration decided to adopt an old Obama Administration technique for bypassing Congress, called “sue and settle.” A 2014 note in the Virginia Law Review defines this: “Sue-and-settle is a process whereby an advocacy group sues a regulatory agency, charging the agency with violations of a non-discretionary statutory duty. The agency, rather than defend itself at trial, settles with the advocacy group. The resulting settlement agreement or consent decree…binds the agency to take action to resolve the plaintiffs’ claims.”

When the executive branch cannot convince the sclerotic legislative branch to change existing policy, the executive branch can adopt new policy without Congress if the policy is forced on the executive branch by a judicial order or decree. The Obama administration in particular would ask environmental and civil rights groups to file suit against the federal government in a friendly court, and then settle the case with a consent decree. (The Chamber of Commerce and other old-school conservative groups complained about this kind of thing.)

Fast forward to May 28, 2025, when DOJ and DOT jointly went to the Kentucky federal court and asked the court for a consent decree to declare the DBE presumption rule unconstitutional nationwide and order DOT to stop enforcing it. This is still pending.

Then, on June 25, 2025, the Solicitor General of the Justice Department notified the Speaker of the House that the Justice Department would no longer be defending the constitutionality of DBE set-asides in court.

That is all background to the interim final rule that Transportation Secretary Duffy signed late on September 30 and announced on October 1, amending DOT’s DBE rules “to remove the race- and sex-based presumptions that DOT and DOJ and have found to violate the Fifth Amendment. Under the revised rule, any individual seeking to demonstrate that he or she is a ‘socially and economically disadvantaged individual’ will be required to make the same individualized showing of disadvantage, regardless of the individual’s race or sex.”

The new rule will become effective tomorrow (October 3) upon its publication in the Federal Register. The abruptness of this came, relatively speaking, out of the blue. This is explained in section III of the interim final rule:

The Administrative Procedure Act generally requires agencies to provide the public with notice of proposed rulemaking and an opportunity to comment prior to publication of a substantive rule. However, 5 U.S.C. § 553(b)(B) authorizes agencies to publish a final rule without first seeking public comment on a proposed rule “when the agency for good cause finds (and incorporates the finding and a brief statement of reasons therefor in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.” DOT finds that providing advance notice and an opportunity to comment on these regulatory changes pertaining to the DBE and ACDBE programs would be impracticable, unnecessary, and contrary to the public interest. Consistent with the letter authored by the Solicitor General and discussed elsewhere in the preamble, DOT has determined that race- and sex-based presumptions of the DBE and ACDBE programs violate the U.S. Constitution. In the absence of this IFR, however, DOT’s own regulations would continue to require funding recipients to apply those very same presumptions. Allowing this confusing and contradictory situation to continue during a notice-and-comment process would be impracticable and contrary to the public interest. Further, notice-and-comment is unnecessary where a regulatory action is required as a matter of law to ensure consistency with rulings of the United States Supreme Court. It is well-established that an agency is not required to continue to enforce a statutory provision that it has found to be unconstitutional. By the same token, an agency is not required to subject the public to unconstitutional requirements. This IFR provides notice of the amendments to the regulations’ provisions and invites the public to comment. DOT has determined, however, that it should not delay the effectiveness of the amendments and that it should act immediately to remedy the unconstitutional programs. For the foregoing reasons, the good cause exception in 5 U.S.C. § 553(d)(3) also applies to DOT’s decision to make this IFR effective upon publication.

NYC and Chicago Projects

This allowed the Administration to kill two birds with one stone – serve the goal of getting rid of DBE presumptions, and also screwing with NYC. Citing the new interim final rule, DOT has suspended funding payments and reimbursements on the Hudson River Tunnel and the Second Avenue Subway Phase 2 while DOT examines whether or not the DBE criteria match those in the new federal rule that takes effect tomorrow. (Oct. 3 update: that funding suspension has apparently been extended to the Chicago Red Line Extension and the Red/Purple Line Modernization Project. More below.)

Once the new interim final rule had been signed, the Federal Transit Administrator, Marcus Molinaro, sent identical letters to the heads of the organizations sponsoring the new Hudson River Tunnel and the new Phase 2 of the Second Avenue Subway. The letters said that “In conjunction with the IFR, the Department is reviewing the projects it funds to ensure nondiscrimination in its financial assistance programs. This letter serves as official notice that this review applies to [your project]…Pending completion of the review, no further disbursements for [your] Project will be made.”

What kind of money is temporarily at stake here?

Hudson River Tunnel – this project has two separate gigantic federal grant awards through the Gateway Development Corporation.

• The Federal Transit Administration signed a not-legally-binding agreement in July 2024 to award $6.88 billion in Capital Investment Grant (CIG) funding over the coming years to the project. An even $1.5 billion has been legally obligated so far: $800 million on July 8, 2024, and an additional $700 million on August 28, 2025. As of a few weeks ago, $122.7 million in cash reimbursements for completed work had been made.
• The Federal Railroad Administration promised a total of $3.8 billion in Federal-State Partnership grants for the project. A total of $2.85 billion has been legally obligated so far: $1.90 billion on September 17, 2024 and an additional $950 million on November 21, 2024. As of a few weeks ago, $182.1 million in cash reimbursements for completed work had been made. (Presumably the Acting FRA Administrator would have to send a separate letter to the MTA because the FTA Administrator has no jurisdiction over this grant.)

Second Avenue Subway – the FTA has signed a not-legally-binding agreement with the New York City MTA promising $3.4 billion in CIG funding over several years. $450 million was legally obligated on November 4, 2023, and an additional $496.8 million was legally obligated on September 9, 2024. Of that total amount, $126.4 million in cash reimbursements for completed work had been made as of a few weeks ago.

The amount of federal money that could be withheld depends on how fast the MTA and Gateway are performing reimbursable work right now, which we don’t know. In addition, we aren’t sure how this will shake out – even if the Trump Administration prevails in court on its refusal to enforce or defend existing DBE law on constitutional grounds, there are plenty of ways that the MTA and Gateway could argue that the abruptness of DOT’s reversal of position – when the contracts were being negotiated, DOT was telling them to include the very language that DOT now says is illegal – violates basic due process and also created “reliance interests” whereby MTA and Gateway made a lot of commitments relying on the federal laws and regulations that DOT now says are no good.

Chicago projects – Oct. 3 update: This morning, OMB Director Russ Vought posted on X, “$2.1 billion in Chicago infrastructure projects–specifically the Red Line Extension and the Red and Purple Modernization Project–have been put on hold to ensure funding is not flowing via race-based contracting.” The Red Line Extension received a not-legally-binding $1.97 billion full funding grant agreement through the CIG program on January 10, 2025. $746 million was legally obligated the following day, and an additional $350 million was legally obligated just over two weeks ago, on September 18. $173.6 million had been outlaid as of the last update to usaspending.gov.

The Chicago Red-Purple Line Modernization project is older – it got its FFGA on January 9. 2017, for $957 million, and had all its appropriations made and executed by 2022. But only $661 million had been outlaid as of the last update, so almost $300 million in future reimbursements could be delayed.

This is not about the shutdown

One interesting point: none of the above has anything whatsoever to do with the government shutdown. All of it could have happened weeks ago, or weeks from now. The only difference is that doing it on the first day of the shutdown helps mask the scope of the complete reversal of almost 50 years of DBE policy.

The only thing that does have to do with the shutdown was this sentence in the press release sent out by Secretary Duffy’s office yesterday: “Thanks to the [shutdown], however, USDOT’s review of New York’s unconstitutional practices will take more time. Without a budget, the Department has been forced to furlough the civil rights staff responsible for conducting this review.”