California: Sexual orientation certification, the ‘diversity’ criterion that gives LGBT-owned businesses priority in hundreds of millions of dollars in public contracts

California has turned public procurement into an instrument of social engineering. Beyond traditional affirmative action programs targeting supposedly “oppressed” groups—such as racial minorities and women—the state’s Democrats have incorporated a new favored group: businesses certified as LGBTQ-owned.

This mechanism operates through the California Public Utilities Commission (CPUC), the agency that oversees private utility companies providing essential services to nearly 39 million residents.

According to an exhaustive analysis published by City Journal, California’s public utilities spent more than $43 billion on contractors of all kinds during 2024. A fraction of that massive budget is allocated according to “goals” for diversity, which now include the sexual orientation and gender identity of business owners.

The origin and expansion of the program

The program began in 1986, under Republican Governor George Deukmejian, with a law that required public utilities regulated by the CPUC to submit annual plans to purchase goods and services from women- and minority-owned businesses. Two years later, the Supplier Diversity Program was created, which set procurement targets.

Over the years and under Democratic administrations, the program was expanded. In 2014, Jerry Brown promoted the inclusion of "LGBT-owned" businesses. In 2019, Gavin Newsom strengthened the initiative, encouraging other companies in the energy sector to award contracts to businesses owned by LGBTQ+ individuals.

By 2022, the CPUC had set specific targets for large utilities (those with annual revenues exceeding $25 million): "0.5 percent of procurement in 2022; 1 percent in 2023; and 1.5 percent in 2024 and beyond. If ‘large’ CPUC-regulated utilities met these ‘goals’ in 2024, they would have sent roughly $633 million to LGBT-owned firms."

How to prove you are “officially gay” to the state

Certification depends on a bureaucratic process centered on personal identity. The Supplier Clearinghouse presents on its website a list of requirements, including letters from LGBT organizations confirming the applicant’s sexual orientation, news articles identifying the person as LGBT, three letters from personal contacts written on company letterhead attesting to their homosexual orientation, and additional documents such as discrimination complaints or medical certificates.

The National LGBTQ+ Chamber of Commerce and Allies also issues certifications. Anyone who falsifies information may face up to one year in prison.

Mary Ann Horton, recognized for contributions to the development of email attachments, has gone through this certification process. Horton, a white man who identified as a woman and is currently married to a woman, registered the company Red Ace in California as a women- and LGBT-owned business.

To obtain the certifications, Horton submitted a large number of documents: a domestic partnership affidavit to prove that the business was “owned by a lesbian,” a birth certificate reissued after the transition and a letter from a therapist certifying transgender identity, per City Journal. These designations brought Horton tangible benefits: shortly thereafter, San Diego Gas & Electric (SDG&E) awarded Horton a contract as a part-time cybersecurity contractor. Horton claims a company official said that being on the diversity list significantly facilitated the hiring process.

“If I was a straight, white male, I might be concerned I don’t have the same opportunity,” Horton acknowledged. “It worked out great for me.”

Tensions with the law and public sentiment

This system clashes head-on with Proposition 209, passed by voters in 1996, which prohibits the state from granting preferences based on race, sex or ethnicity in public hiring, employment and education. In 2020, Californians once again rejected its repeal.

Although the CPUC insists that these are merely voluntary “goals” and not “quotas,” in practice it imposes significant pressure: it requires comprehensive collection of demographic data, detailed annual reports, improvement plans, and justifications for noncompliance. The official targets include 15% for minorities, 5% for women, 1.5% for disabled veterans, and 1.5% for LGBT-owned businesses.

According to City Journal, despite this regulatory mechanism, enthusiasm remains limited. In 2024, contracting with LGBT-owned businesses fell by 5%. Of the more than 3,500 companies certified as minority-owned, approximately 451 are listed as LGBT.