New Bipartisan Employee Ownership Legislation in Washington State
After a 2022 that saw two state legislative successes for the employee ownership field in California and Massachusetts, new bipartisan legislation has been introduced in Washington State by State Senator Mike Padden (R-Spokane) and Senate Majority Leader Jamie Pedersen (D-Seattle).
Senate Bill 5096, “An Act Relating to Expanding Employee Ownership” is a culmination of lessons learned from states that have already taken steps to advance employee ownership. The bill would create the Washington Employee Ownership Program within the Washington State Department of Commerce with a Director charged with:
- (i) Convening a network of technical support and service providers for businesses considering all forms of broad-based employee ownership;
- (ii) Working with state agencies whose regulations and programs affect employee-owned businesses;
- (iii) Partnering with external service providers and organizations to make Washington State maximally conducive to the growth of employee ownership;
- (iv) Curate a referral service with service providers to assist in feasibility studies and transitions to employee ownership
The bill replicates the approach of the State of Colorado by authorizing an Employee Ownership Commission with members appointed by the Governor, the legislature, and external stakeholders. The bill also replicates the State of Colorado in introducing a tax credit to offset the costs of feasibility studies and get business owners started on the path of considering employee ownership as a succession option. The tax credit is scoped at $2 million annually and provides up to 50% of conversion costs for an ESOP (up to $100,ooo) as well as worker cooperatives and employee ownership trusts ($25,000).
The legislation extends beyond the examples set by other states in creating a state revolving loan fund (RLF) to support the financing of conversions for the smallest of businesses that may struggle to attract conventional financing. Based on lessons learned at the federal level, the statute explicitly precludes the use of personal guarantees in the underwriting criteria for worker cooperative conversions. Finally, the bill adds statutory clarification that State Small Business Credit Initiative (SSBCI) funding for the State of Washington may be used according to the employee ownership use cases offered by the Treasury Department.
If enacted, SB 5096 would be the most significant employee ownership legislation passed at the state level. Ownership America was proud to advise on this legislation and we look forward to success in Washington State and across the country in 2023.
More information can be found on the bill here
Special thanks to Gellert Dornay for initiating this exciting legislative development.
Governor Charlie Baker Signs Massachusetts Employee Ownership Legislation
Governor Charlie Baker of Massachusetts has signed a wide-ranging economic development legislative package that included An Act to Enable the Massachusetts Center for Employee Ownership (S.261 / H.511) that will now permanently institutionalize the Massachusetts Center for Employee Ownership (MassCEO) in the Mass. Office of Business Development. Led by a full-time director, the purpose of the office will be to conduct outreach to business owners considering their business succession options, serve as a resource hub for service providers and existing employee-owned businesses, and provide grant funding to external organizations to supplement outreach and education efforts across the Commonwealth. The legislation also created a formal Advisory Board comprised of representatives from a number of stakeholder groups including Governor-appointed representatives from Massachusetts-based ESOP companies and worker cooperatives. Fortunately, the office has already received an initial capitalization of $300,000 based on a successful budget appropriation earlier in the year.
Massachusetts has a long history of supporting employee ownership that paved the way to this successful outcome. In the 1990’s then-State Senator David Magnani introduced and passed legislation creating the Massachusetts Office for Employee Ownership and Involvement (the lead staffer drafting the legislation was Karen Spilka, the current Senate President and occupant of Senator Magnani’s former seat). Passed as a budget line item, the office was administered on a contract basis for several years by Christopher Mackin, President of Ownership Associates and an Ownership America Advisory Board Member. When the 2008 financial crisis hit, the line item fell victim to budget cuts. The loss of funding was a lesson that future employee ownership efforts needed a more durable footing in Massachusetts state government.
In 2017, Senator Julian Cyr of the Cape & Islands was successful in reviving the office as a line item in the state budget, which has since been administered by the Northampton-based ICA Group. Heading into the 2021-2022 legislative session, employee advocates across the Commonwealth put their weight behind legislation introduced by Senator Cyr and Representative Carmine Gentile to formally authorize the office and permanently institutionalize it within the Mass. Office of Business Development along with the creation of an Advisory Board. In the Fall 2021, advocates including Ownership America Founder Jack Moriarty, former Senator Magnani, Christopher Mackin, and Mass. Bay Brewing Co. (a.k.a Harpoon) CEO Dan Kenary all testified in support of the bill before the Joint Committee on Economic Development & Emerging Technologies. The bill was reported favorably out of committee in both the House and Senate (the best possible outcome) and subsequently passed by both the House and Senate as part of a broader economic development package, an outcome bolstered by a spring State House rally hosted by the Coalition for Worker Ownership and Power (COWOP).
The legislative session did not end without its share of political surprises. The MassCEO legislation was successfully attached to the annual economic development bill with support from both chambers, but the broader package was thrown into jeopardy at the last minute by a little-known 1980s ballot initiative law called 62F, which mandates taxpayer refunds in years where state revenues exceed a certain threshold (a rare occurrence). The economic development bill included its own tax relief provisions which created uncertainty as to whether the state had fiscal capacity to provide legislative relief in addition to the 62F refunds. The legislature tabled the bill at the end of its formal session in August in order to take more time to sort out the implications of 62F. Fortunately, thanks to Senator Cyr and Representative Gentile, the MassCEO had already successfully secured $300,000 in funding through a separate budget bill. As a result, it would not cost the state anything to retain the MassCEO enabling legislation in its revised economic development bill. Thanks to continued engagement from employee ownership advocates, the legislature unveiled its revised economic development bill last week that retained the MassCEO authorizing legislation, which was then signed by Governor Baker.
Massachusetts marks the second major state legislative victory for the employee ownership movement in the last six weeks, coming on the heels of California’s Employee Ownership Act which Ownership America supported as an organizational co-sponsor.
Ownership America Testifies Before Massachusetts Legislature on State Center Bills
Ownership America was pleased to testify in support of “An Act Enabling the Massachusetts Center for Employee Ownership” (H.511/S.261) in a recent hearing before the Joint Committee on Economic Development and Emerging Technologies of the Massachusetts legislature. Sponsored by Representative Mike Gentile of Sudbury and Senator Julian Cyr of the Cape & Islands in their respective chambers, the legislation would authorize a permanent Massachusetts Center for Employee Ownership (MassCEO) in the Commonwealth’s Executive Office of Housing and Economic Development. The purpose of the office would be to provide public outreach and technical assistance to business owners exploring business succession, ensure the growth of employee-owned businesses in the state, and publicize the benefits of employee owners to policymakers and the general public.
“With this legislation, this Committee has the opportunity to remove a key barrier to employee ownership adoption–awareness on the part of business owners that are getting ready to retire and sell their business,” Ownership America Executive Director Jack Moriarty told the Committee. “According to data published by Project Equity, Massachusetts is home to over 68,000 businesses that have an owner in the baby boomer demographic. If even a fraction of these exiting owners pursued employee ownership as their business exit strategy, the potential impact on workers, communities, and the overall Massachusetts economy would be extraordinary.”
Moriarty was joined by Mass Bay Brewing Company (a.k.a Harpoon Brewery) Co-Founder & CEO Dan Kenary who shared his strong support of employee ownership:
“Imagine what it would look like if many of the businesses in Massachusetts were owned by their employees: The local economy would be more vibrant and deliver higher productivity. The wealth created would be shared more widely, leading to more broadly based prosperity. The employee-owned companies would be less likely to move away and their employees would be less likely than others to be laid off during a recession. You would have the opportunity to champion an economic program that enjoys broad bipartisan and public support.”
Kenary led Mass Bay Brewing to become a 48% employee-owned company through an ESOP in 2014. Other witnesses in favor of employee ownership included former State Senator David Magnani of Framingham, who sponsored the original legislation that created a prior iteration of the state office. His lead staffer on the legislation at the time? None other than current President of the Massachusetts Senate Karen Spilka. Testimony was also provided by Christopher Mackin, who previously ran the office before it was cut in the wake of the 2008 recession. There was no opposition registered for the bills, which now await advancement by the Joint Committee.
You can watch the hearing recording here: https://malegislature.gov/Events/Hearings/Detail/3999
Dr. Janet Boguslaw Published in The Future of Building Wealth
Dr. Janet Boguslaw, a Senior Scientist in the Heller School for Social Policy and Management at Brandeis University, was recently published in a comprehensive book project titled The Future of Building Wealth: Brief Essays on the Best Ideas to Build Wealth—for Everyone led jointly by the Aspen Institute and the Federal Reserve Bank of St. Louis. Her essay “The Untapped Potential of Employee Ownership to Narrow Gender and Racial Wealth Gaps” was one of 63 original essays authored by scholars and thought leaders from across the economic policy community.
The essays explore the latest thinking around how policymakers can help rebuild the balance sheets of American households in the wake of the pandemic, along with a range of proposals designed to generate savings, assets, and financial security for low-wealth families. In his Foreword to the publication James Bullard, President and CEO of the Federal Reserve Bank of St. Louis, posed the following question:
“What does property ownership mean in the 21st century, and how can our nation broaden it for those who own little?” This same question animates the work of Ownership America.
In her essay, Boguslaw makes an explicit link between the wealth-building capabilities of employee ownership and the Biden administration’s priorities to both recover equitably from the pandemic and address racial and gender wealth gaps. Importantly, she makes the case for the federal government to pursue a “systems-level” approach to employee ownership policy rather than the siloing of initiatives in a handful of agencies.
“The time is right to build an integrated complementary policy infrastructure to support employee ownership and deliver on the priority of closing wealth gaps.” Boguslaw provides detail to the argument by proposing three main federal policy opportunities:
- Funding the bipartisan Main Street Employee Ownership Act (MSEO) of 2018, which directed the SBA to remove barriers to employee ownership financing in their flagship 7(a) lending program, and directed the Administration to conduct outreach related to employee ownership through the national Small Business Development Center (SBDC) network.
- The Employee Equity Loan Act, an Ownership America proposal that has recently been renamed to the Employee Equity Investment Act, which aims to use federal loan guarantees to extend employee ownership further into the middle market of the American economy with the recognition that employee ownership should not be limited to the small business sector alone. Boguslaw notes that “such a federal guarantee would also open the door for institutional investors and impact capital to invest profitably in broad-based wealth creation in the workplace.” Such a guarantee program could be administered by the Commerce or Treasury Department.
- Workforce training investments managed by the U.S. Department of Labor under the Workforce Innovation and Opportunity Act. Boguslaw recommends the direction of workforce development dollars “to support skill building and education for ownership to enable firm buyouts.”
Boguslaw emphasizes that “shared ownership must be seen as an important new form of economic development, with all parties benefitting from the production process in equitable and sustainable ways.” Ownership America applauds Dr. Boguslaw for her thought leadership and articulation of the need for any employee ownership strategy to be coordinated and integrated across the federal government.
Other thought leaders in the employee ownership community that participated in the project include Joseph Blasi and Douglas Kruse of the Institute for the Study of Employee Ownership and Profit Sharing at Rutgers University, who jointly published “Why Profit Sharing is Essential for Building Middle-Class Incomes and Wealth.”
Now that some of the foremost thought leaders in economic policy have turned their attention squarely to wealth and asset ownership, it is up to policy institutions like Ownership America to convert these intellectual “raw materials” into public policy proposals and legislation that can be popularized, passed, and implemented at the state and federal levels.
The book is available for free online at the Aspen Institute website: https://www.aspeninstitute.org/publications/the-future-of-building-wealth-brief-essays-on-the-best-ideas-to-build-wealth-for-everyone/