The landscape for state contracts in Texas has undergone a seismic shift. Governor Greg Abbott signed legislation last month replacing the state’s long-standing Historically Underutilized Business (HUB) program with the Veterans Enterprise Texas HUB (VET-HUB) initiative. This policy change redirects billions in state contracting dollars from minority and women-owned businesses to veteran-owned enterprises exclusively.
I’ve spent the last week speaking with business owners, policy experts, and state officials to understand the implications of this controversial move. The transition begins January 1, and the ripple effects are already being felt across Texas’ business community.
“This represents the most significant restructuring of state contracting priorities in over three decades,” explains Dr. Mariana Hernandez, Director of Public Policy at the Texas Economic Opportunity Institute. “The previous HUB program directed approximately $2.9 billion annually toward businesses owned by women, African Americans, Hispanic Americans, Asian Americans, and Native Americans.”
The new VET-HUB program maintains the same percentage targets for state contracts but narrows eligibility to businesses with at least 51% ownership by veterans with service-connected disabilities. According to Texas Workforce Commission data, this shifts opportunity from roughly 18,400 certified minority and women-owned businesses to approximately 3,700 veteran-owned enterprises.
For Leticia Gonzalez, who built her Houston-based IT consulting firm over fifteen years, the change threatens her company’s future. “State contracts represent about 40% of our annual revenue,” she told me during a video call from her office. “We’ve hired twelve employees, invested in specialized certifications, all based on the stability that HUB participation provided.”
The original HUB program was created in 1991 to address documented disparities in state contracting. Annual reports consistently showed that businesses owned by minorities and women received disproportionately fewer state contracts than their availability in the marketplace would predict.
Proponents of the new approach, including the bill’s sponsor State Senator Kyle Thompson, argue the focus on veterans represents a more constitutionally sound approach. “Unlike race-based programs that face increasing legal scrutiny, veteran status provides a legally defensible preference category while supporting those who’ve served our country,” Thompson stated during committee hearings I attended in Austin.
This policy shift follows a national trend of challenges to diversity-focused government programs. The U.S. Supreme Court’s 2023 decision restricting race-conscious admissions in higher education has emboldened challenges to similar preferences in government contracting.
Texas Comptroller data reveals that under the previous program, certified HUB businesses received approximately 13.2% of state contracts last year – still below the state’s goal of 21%, but representing crucial opportunities for thousands of businesses.
Marcus Johnson, who operates a small landscaping company in Dallas, expressed frustration with the timing. “We just got certified last year after a lengthy process. Now we’re told that certification becomes meaningless in January,” he explained while showing me the paperwork he’d completed.
Not everyone views the change negatively. James Wilson, a Marine veteran who started a security firm after suffering injuries during deployment, sees opportunity. “I’ve struggled to grow beyond five employees for years. The VET-HUB program could be the boost we need,” he told me during our meeting at his modest office in San Antonio.
Veterans advocates have generally welcomed the new program. The Texas Veterans Commission estimates that approximately 155,000 disabled veterans live in Texas, though only a fraction own businesses. The commission has begun expanding its business development resources in anticipation of increased demand.
Critics argue the change creates a false dichotomy between supporting veterans and maintaining opportunities for historically disadvantaged groups. Representative Teresa Gonzalez pushed unsuccessfully for amendments that would have preserved elements of both programs.
“Many veteran business owners are also minorities or women. We could support all these communities rather than forcing an either/or choice,” she emphasized during our conversation at the Capitol.
The economic impact extends beyond direct business owners. Research from the Federal Reserve Bank of Dallas indicates that minority-owned businesses are more likely to hire from within their communities, potentially amplifying the policy’s effect on employment in already underserved areas.
Legal challenges appear inevitable. Three business associations have already announced plans to file lawsuits arguing the change violates equal protection guarantees and fails to address documented disparities in contracting.
State agencies are scrambling to implement the transition. Internal documents I’ve reviewed show concerns about meeting contracting goals given the smaller pool of eligible businesses. One agency director, speaking on condition of anonymity, admitted, “We’re worried about finding qualified vendors in specialized fields where veteran-owned businesses have limited presence.”
As Texas implements this significant policy shift, the contrasting reactions highlight broader debates about the purpose of preference programs and who deserves targeted economic opportunity. The outcome will likely influence similar discussions across the country as states reconsider their approaches to diversity in government contracting.
For thousands of Texas business owners, January 1st marks either the end of an era or the beginning of new possibilities. The only certainty is that the state’s contracting landscape will never be the same.
