ANJMER CONSULTING, LLC 

«Oreanizatiom> 

Final Report 

Third Exclusion Position Development 

December 2, 20 II 

Executive Summary 

"<<Organization>> 9632 Duffer Way Montgomery Village, MD 20886 T 240 632 9870 F 240 842.1966 www.animerconsulting.com 
«Organization» 

Background 

Animer Consulting, LLC was hired to assist the Federal Aviation Administration (FAA) 

Office of Civil Rights in developing a position on whether the Department of Transportation 

(DOT) and FAA should retain, delete, or modify the current exemption sometimes referred to as 

the third exclusion to the Personal Net Worth (PNW) calculation. 

Project Objectives 

The project's primary objectives are to seek opinions of stakeholders, to determine the affect of 

an increase in the PNW on access to capital for ACDBEs and to collect data on the number of 

requests, approvals and denials for the third exclusion. 

Project Approach 

Stakeholders including concessionaires, airport recipients and government officials were interviewed. Data was collected from certifying agencies. 

Findings 

Overall, ACDBEs want to retain the third exclusion with more guidance and training for ACDBE 

certification analysts. Stakeholders charged with establishing guidelines, administering and 

monitoring the third exclusion are more likely to think it should be deleted. They are concerned 

that the third exclusion, with the addition of the proposed increase in the PNW cap, will increase 

the possibility that the ACDBE program will be considered to be over inclusive. Data collected 

from certifying agencies supports that requests for the third exclusion have been relatively few 

over the six year period it has been available to ACDBEs. 

Suggestions I Recommendations 

A majority of the respondents recommended retaining the third exclusion, providing 

there is additional guidance, training for certification analysts and monitoring to ensure 

that it is properly applied. Suggestions were made to continue to collect data that supports both the third exclusion and the overall ACDBE program and reflects marketplace 

conditions. 

Background 

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Animer Consulting, LLC was hired to assist the Federal Aviation Administration (FAA) 

Office of Civil Rights in developing a position on whether the Department of 

Transportation (DOT) and FAA should retain, delete, or modify the current exemption 

sometimes referred to as the third exclusion to the Personal Net Worth (PNW) calculation. This exclusion pertains only to participants in the Airport Concessions Disadvantaged Business Enterprise (ACDBE) Program. The third exclusion refers to "other assets that the individual can document are necessary to obtain financing or a franchise 

agreement for the initiation or expansion of his or her ACDBE firm (or have in fact been 

encumbered to support existing financing for the individual's ACDBE business), to a 

maximum of $3 million. 

Project Objectives 

The project had the following objectives: 

(1) Identify any additional benefits, shortfalls, or reason for each option being 

considered (retain, delete, modify) for the third exclusion; 

(2) Seek opinions from stakeholders on the following questions: 

and 

Has this exemption been difficult to implement and why? 

Has there been inconsistent implementation regarding the required 

documentation to support the exemption? 

Is the definition of the exclusion adequate or could it be improved? 

What role, if any, does the proposed increase in the PNW from $750,000 

to $1.32 million play in this analysis? 

(3) Collect data on the number of requests for the third exclusion to exempt assets 

from PNW calculations and the documentation requested to support the purpose 

for the exemption. 

Project Approach 

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To obtain information to assist in developing a position on the third exclusion, a cross 

section of stakeholders were interviewed and data collected from certifying agencies to 

gather thoughts about and use of the third exclusion. Stakeholders provided their opinions, experiences and suggestions for the third exclusion. Interviews were conducted 

both face to face and telephonically. Data from certification agencies was requested 

and received through email correspondence and by phone. 

A total of twelve stakeholders were interviewed. The food & beverage operators, news, 

gift and specialty retailers and duty free operators interviewed operate as subtenants 

and joint venture partners and or have direct contracts with a developer or airport recipient. All the ACD.BEs interviewed operate on multiple airports or operate multiple units 

on a single airport. Interviews were conducted with stakeholders representing federal 

policy makers and regulators, industry associations, airport recipients and lenders. 

Twenty certifying agencies and or ACDBE program administrators replied to the request 

to provide ACDBE certification data including the number of requests received to exempt personal assets used to obtain financing for airport concession business and the 

documents used to make asset exemption determinations. 

Findings 

Eight of the twelve stakeholders interviewed thought that the third exclusion should be 

retained with additional guidance and training for those responsible for administering it. 

Four of the twelve interviewed were very concerned that the third exclusion contributes 

to the perception that the ACDBE program is over inclusive and would like to have more 

documentation to support the need for the third exclusion if it is to be retained. 

The ACDBEs interviewed had not requested the third exclusion although they shared 

their knowledge of the experiences of their colleagues who had. They also indicated 

why they would be reluctant to seek the third exclusion. Some of the reasons given by 

the ACDBEs were: 

• Certification analysts do not understand business and accounting. 

• I would not want to have the assets on my books arid then they not be exempted. 

• It is not clear what the rules are. 

• I am unclear about the rules like how long an asset can be exempted. 

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Of the twenty airport certifiers that responded to the information. request, six have had 

one or more ACDBEs request exemption of assets under the third exclusion. Of the sixteen requests made, thirteen were approved, (three after appeal), and three were denied. 

According to an airport recipient, valuation of assets and loan documents that identify 

specific assets have been a challenge for both ACDBEs and certification analysts. 

Findings specific to the three project objectives are presented below. Opinions, 

thoughts and ideas related to the first objective to identify any additional benefits, shortfalls or reason for each option being considered did not produce any significant new 

thinking and were consistent with ideas and opinions received in response to previous 

requests for comments. 

A. Identify any additional benefits, shortfalls, or reason for each option 

_being considered for the third exclusion. 

• Retain 

A benefit of retaining the third exclusion is that it is already in place. The opportunity 

has created good will between the DOT, FAA and ACDBEs aspiring to grow in the airport concession business. The third exemption is valued and seen as a positive response to the marketplace conditions for ACDBEs. A shortfall is that guidance on implementation of the third exclusion is not as clear as it could be and to continue without 

further clarification rriight make requesting the asset exemption less attractive. 

• Delete 

Because there are third exclusion requests that have been approved, an exit process 

would have to be developed. Deleting the third exclusion would diminish goodwill. It 

might suggest that conditions limiting access to opportunities and capital in the market 

place no longer exist or are not of concern. · 

• Modify the Definition 

One modification suggested was to eliminate the $3M maximum on the third exclusion. 

The idea is that to take advantage of business opportunities on airports, any cap creates a barrier or a glass ceiling. The activity of responding to the questions and issues 

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raised by stakeholders might produce ideas for ways to modify the definition so that 

concerns such as over inclusiveness and consistency in the application of the third exclusion are addressed. 

B. Summary of responses to the "four questions" 

Four questions were posed related to the definition and implementation of the third exclusion. One question reflects a very significant change in the ACDBE program operating environment. The third exclusion was conceived as a way to address the potential 

barriers created by the $750k PNW cap. The environment at the time it was added to 

the PNW definition was not favorable to increasing the PNW cap. Now that the PNW 

cap will likely be adjusted to $1.32 million, some non-ACDBE stakeholders do not see 

the benefit of retaining the third exclusion. For some, in the new environment of an increased PNW cap, the third exclusion represents a potential cost to the ACBDE pro-. 

gram rather than a benefit. 

• Has this exemption been difficult to implement and why? 

Most responders did not consider implementing the third exclusion to be difficult primarily because they had not received any requests. Others were somewhat concerned · 

about "doing it right" and wanted to be sure that the documents requested and reviE!W 

conducted was sufficient and or compliant. 

Some stakeholders interviewed did think that the exemption has been difficult to implement. One reason given was that the requirements and process is not clear for 

ACDBEs or certifiers. Another reason offered was that individuals responsible for certification are not adequately trained. It was suggested that individuals responsible for 

certification be given specific guidelines to follow in calculating the exemption of assets 

proposed or already pledged to obtain financing, what documents to request and how to 

review them. 

To date, the DOT has rendered decisions on three appeals involving the third exclusion. 

Two were remanded to the recipient, while the third appeal was denied. These appeals 

were from established ACDBE firms, that is businesses that were not new to the 

ACDBE program. Additional guidance and training may increase the number of requests and reduce the number of denials that are appealed. 

• Has there been inconsistent implementation regarding the required documentation to support the exemption? 

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All stakeholders interviewed had personal experience or knowledge of inconsistencies 

in the implementation of the certification process including the third exclusion. 

One example given was that certifiers do not seem to understand that the exemption of 

assets can be less than $3 million dollars. Another example was that some certifiers 

are already using a $1.32 million net worth cap for ACDBEs ·while others are automatically adding $3 mil to 750k as the net worth cap with no documentation to support it. 

• Is the definition of the exclusion adequate or could it be improved? . 

The definition of the third exclusion, what it is, seems to be clear to the stakeholders interviewed. Everyone interviewed said that implementation of the exclusion can be improved. 

Questions raised by the stakeholders provide excellent insights into how the definition of 

the third exclusion might be modified and what information might be beneficial to include 

in guidance or training that may be developed in the future. Examples of the questions 

raised are listed below. 

• What can be done to prevent fraud and abuse of the third exclusion? 

• How can we ensure that the ACDBE program is not perceived as over inclusive? 

• How can we get information and data to support the ACDBE program if it is challenged? 

. . 

• What are ways other than the third exclusion that the glass ceiling can be avoided? 

• How can airport recipients increase competition in the airport concessions business? 

• What are some of the assets that might be exempted in the third exclusion? 

• How could a sliding scale for PNW relative to projected gross sales of the business be 

established and monitored? 

• What kind of system could reflect the individual situations of businesses and owners? 

• How will assets encumbered (e.g. as collateral for a loan) for business purposes be 

excluded from the PNW calculation? 

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• How do existing ACDBEs benefit from the up to $3 million exclusion? 

• What is the process for approving the third exclusion? 

• How frequently is an ACDBE's PNW reviewed? 

• At what point in the business development process can assets become exempt? 

• When does the ACDBE request the third exclusion? 

• What is the total allowable exemption? 

• What documents must an ACDBE provide the airport recipient to exempt assets that 

are collateral for loans for airport concession business? 

• If an ACDBE company has two disadvantaged owners, can both owners be approved 

for the exclusion of assets pledged for a loan? 

• Can an ACDBE request that assets be excluded as part of PNW calculations at different airport locations? 

• What is a recipient's responsibility for sharing information regarding the PNW with 

other recipients? 

• What role, if any, does the proposed increase in the PNW from $750,000 to 

$1.32 million play in this analysis? 

The ACDBEs interviewed think that the increase proposed is good news. An ACDBE 

Program Manager thinks the PNW should be higher. One commenter that certifies 

ACDBEs suggested that the PNW should be 3 million dollars. The same commenter 

recommended that there not be a third exclusion. 

Several established ACDBEs thought that it is especially good for new entrants as it 

may provide access to more capital and reduce the probability of failure due to insufficient start up capital. Other stakeholders think that it may bring more attention to what 

has been said in the past, that the program is over inclusive and a program for millionaires. 

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C. Collect data on the number of requests for the third exclusion to exempt assets from PNW calculations and the documentation requested to 

support the purpose for the exemption. 

An email was sent to a representative of each state UCP requesting the number of 

ACDBEs certified, the number of ACDBEs requesting the third exclusion, the number of 

requests approved and denied and the number of requests seeking the maximum of 3 

million dollars. Of the twenty respondents, six have reviewed requests for the third exclusion. There were eleven requests by ACDBEs. 

In addition to the information above, certifiers were asked what documents were 

requested to evaluate the ACDBE's request for assests to be excluded in the PNW 

calculation, what challenges the recipient encountered in administering the third 

exclusion and other comments they might provide. Responses are listed below. 

What documents do you require ACDBEs to provide? 

• Personal Financial Statement (PFS), 3 years personal and business tax returns, 3 

years corporate financials, 3 years affilitate business returns, concession agreements, 

bank loan agreements (as well as collaterization requirements). 

• Copy of financing agreement, payment documentation, etc. 

• Letter from bank or airport to show the need for financing a loan extending to $3M. 

• We require them to show us where the funds are held, documentation on how the 

funds were acquired and proof as to what the funds will be used for in their expansion 

of services as an ACDBE. 

• If and when applicable, firms will be required to submit supporting financial documents 

. and or contractual agreements initiating servd~s internally or externally for the 

required expansion. 

• ACDBEs provide the same documentation as Part 26 applicants but we would require 

additional documentation if applicants requested the PNW exclusion. 

• Loan documents and documentation from airport verifying concession space (ie 

contract award). 

• Copies of loan/documents/letters supporting collateral used to obtain financing to open 

or expand a concession business at an airport. 

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What, if any, have been the challenges in implementing the third exclusion? 

• The challenge in implementing the exclusion is the difference in interpretation from 

agency to agency and how each chooses to implement the requirement. In several of 

the reviews and challenges, the agency representative did not understand first of all 

how to correctly compute the PNW which was the cause for appeal in three cases. 

Secondly, the USDOT has not provided sufficient guidelines in implementing this rule. 

Thirdly, training is very necessary for ALL agency certifiers and mandate consistency. 

, • In application of the regulation, especially when state DOTs and transit are the 

certifying agencies. 

• No challenges were experienced. 

• Using the exemption to get around the PNW value. 

• What I see that might be a challenge is verifying or getting the documentation that 

exclusion monies were used in applicant's concession business. 

• Confusion from the applicants on what can be applied as the third exclusion. 

• Ability to verify asset values and documentation for accuracy and credibility. 

Other comments from certifiers: 

• Recommendations: 1) Remove the $3M exemption; 2) Increase the PNW to $3M; 3) 

For concessions, no PNW due to the dollar volume of business generated at airports 

and the net worth required to sustain business operations at airports. 

• By only having one firm, I do not think there was a challenge since they were willing to 

show and prove what the funds were being held for. · 

Suggestions I RecommendaUons 

• Retain the Third Exclusion 

The third exclusion can create opportunity for business growth and represents 

responsiveness to the capital needs of ACDBEs and the realities of the airport 

concession business environment. 

• Develop Guidance 

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Consistency regarding the evaluation or assessment of requests for the third exclusion 

is crucial to its success. The documents requested to determine whether to approve a 

request should be consistent from airport recipient to airport recipient. 

Determining what is acceptable for documentation to establish the source of the assets 

to be excluded, how they will be used and determining the length of time that the assets 

will be exempted and when must be communicated and consistent. · 

For example, before proposing on an opportunity, the recipient might require verification 

of a franchise. A recipient may also request some verification of ability to buildout units 

proposed for the concession program. 

• Train Certification Professionals · 

For the full benefit of the third exclusion to be accrued by eligible ACDBEs, certification 

professionals must understand the information needed to evaluate requests for 

excluding assets from the PNW calculation of ACDBEs seeking the third exemption.· 

Training should be ongoing. 

• Monitor Compliance 

Just as all other aspects of the ACDBE Program are audited for compliance, so should 

this aspect of determining certification eligibility. 

• Collect Data to Counter Challenges to the ACDBE Program 

The ACDBE Program is and has been the vehicle for access to concession 

opportunities for disadvantaged individuals. There have been questions raised over the 

years regarding the need for the DBE and similar programs. Advocates for the program 

have been vocal proponents. Opponents have made claims that the program is over 

inclusive. 

Information that supports the continuation of the program is useful in every market and 

collecting and maintaining that information is useful and important to respond to 

opponents of the program and those that would consider that the program, or aspects of 

it, are no longer necessary. 

Franchise net worth requirements for some of the most popular brands being operated 

on airports are useful for developing a position on the third exclusion. Most franchisors 

will provide information such as minimum net worth requirements for prospective 

franchisees, the initial franchise fee, the cash investment and the total investment. This 

information was secured for twelve franchises. Only one had a net worth requirement 

under 1M and that one gave a range of 250k to 2M. Six of the franchises had minimum 

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net worth requirements of 1.5M or above and three require a net worth above 2M. Total 

investment for these franchises was as high as 500k to 6M. The National Minority 

Franchise Initiative was the source of this information. 

Going forward, conducting listening sessions to gather thoughts, opinions, experiences 

and ideas on such matters such as joint ventures, the third exclusion, elimination of re~ 

tirement assets in calculating PNW, and small business programs will ensure that the 

ACDBE Program addresses regulatory requirements and marketplace conditions. 

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