There is unprecedented policy activity. At the federal level, a bipartisan group of senators and representatives introduced the Employee Equity Investment Act (EEIA), which would dramatically expand the capital available to support the creation of employee-owned companies. Under principles similar to the federal government’s role in supporting home purchases and small business financing, the EEIA would create a zero-subsidy public–private partnership to support ESOP financing.
Federal regulations are also changing. The Department of Labor has committed to working on the adequate consideration requirements that govern the valuation of shares in ESOPs or ESOP transactions. The DOL said that “relatively soon,” it will engage in a formal notice-and-comment rulemaking process. The nature of those rules will have an enormous impact on the growth of ESOPs. The WORK Act will take effect in 2024, providing funding through the DOL for state employee ownership outreach programs.
The Small Business Administration addressed concerns with the implementation of the Main Street Employee Ownership Act in a Procedural Notice issued on May 9. The new approach to ESOP loans removes some unworkable requirements, such as a required 10% non-ESOP equity infusion, and facilitates ESOP lending though qualified commercial lenders under the streamlined 7(a) program.
In addition, the US Treasury continues its State Small Business Credit Initiative, designed to encourage states to provide preferred financing for the creation of ESOPs, worker co-ops, and employee ownership trusts (EOTs).
May was especially productive among state governments. Washington passed legislation creating the most ambitious state-level program yet to support employee ownership. The legislation creates a program within the Commerce Department to support employee ownership, in addition to providing a tax credit for feasibility assessment and implementation costs for ESOPs, worker co-ops, and EOTs. It also creates a revolving loan fund. Colorado, which has long been the leader in employee ownership policy, passed a bill that expands tax credits to support both the costs of establishing a new employee ownership plan as well as expanding ownership in existing, partially employee-owned companies. Finally, the Texas House passed pro-ESOP legislation (currently in the Senate). In April, legislation was introduced in New York to create a state employee ownership program.
And it’s not just state governments: privately funded state centers for employee ownership have grown dramatically, including recent announcements of large grants from prominent foundations to support their work. This year, the Michigan Center for Employee Ownership received a $300,000 grant from the Kellogg Foundation, and the Pennsylvania Center for Employee Ownership received $120,000 from the Heinz Foundation. State centers continue to grow and thrive, and although there is not yet a state center in every state, 70% of the US population now lives in a state with a state center for employee ownership.
The power of state centers is the reason that I was thrilled to announce at our annual conference that the NCEO is formalizing its collaboration with the Employee Ownership Expansion Network to create the NCEOX Initiative. The EOX has created 12 new state centers since its inception in 2018, and working together with them is yet another reason I’m optimistic that all the activity we’re currently seeing in the employee ownership space is a sign of even better things to come.
For employee ownership to grow, we already have the components we need: research to make the case, compelling stories, an established community, a wealth of best practices, and support organizations. Those pieces are all coming together, and the results will be exciting to watch.