[Inside Organizing] Community Advice

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[Inside Organizing] How should the Lt. Gov’s office support worker co-ops?

🏹Emailed to RI Worker Co-ops listserv June 21st, 2024 Hi cooperators!!! In Brief: I’ve been invited to a meeting with Lt. Gov’s Staff on Thursday the 27th to discuss how the state can better support co-ops and ESOPs. It seems they’re about to get a bunch of $$$ from the federal

HCJSHunter Silvestri

Hunter - Original Outreach Email

Subject: URGENT! How should the Lt. Gov's office support worker co-ops?

Hi cooperators!!!

In Brief: I've been invited to a meeting with Lt. Gov's Staff on Thursday the 27th to discuss how the state can better support co-ops and ESOPs. It seems they're about to get a bunch of $$$ from the federal gov and I'd LOVE your help brainstorming key points to raise.

Why this matters: 

Word on the street is that RI's gov is currently more interested in ESOPs than worker-owned co-ops. That comes across in the Lt. Gov's presentation—check it out here. So I'm taking the total accident of my having been invited to this meeting as an opportunity to say: hey!! worker co-ops are awesome!! and you should invest in them :)

How you can help

• Reply to this email to continue the conversation! What would *you* say to the Lt. Gov? How should the WORK Act money be spent? What are your takeaways from the attached powerpoint? Etc...
• Visit me over video during "Office Hours" next Tuesday if you want to discuss. Here's the link.
• Use this shared document as a catch-all for your ideas, research, questions, notes.
• Call or text me: (401) 269-8610

Look man I'm just a 27 year old part-time landscaper.... I've never been invited to a closed-door meeting of state government officials. I'm pretty used to meetings and this isn't really *that* high stakes—hopefully it's just the beginning of a convo, and in the future more of you guys can be invited—but I'd feel 1000% better if I had your help in preparation for Thursday to be able to make the most of this.

Thanks in advance <3

Hunter

Maggie Cohn

Hi, Hunter,

What a great thing, to be asked how to spend money! In MA, we have been trying to get funding for co-ops into the state budget and it has been an uphill trek.

I am not able to come to your office hours next week so am replying to your email. And I am copying Alex Papali, who staffs COWOP (the Coalition for Worker Ownership and Power) in MA, as he has been heading up the legislative work, to see if he is able to share any wisdom.

Does RI have an Office of Employee Ownership? We have one on the books in MA, but it lacks meaningful funding. We were hoping to get a line item in the budget to cover not only staffing for the office but money for trainings and for TA grants.

Other things we have talked about include getting funding for worker co-ops into existing state programs that assist small businesses (and maybe training for staff so they understand worker co-ops, or adding staff that understand co-ops). We have also wanted to get loan guarantees into the budget to make It easier for co-ops without assets (to serve as collateral) to get loans.

Longer term issues include funds for workers to purchase their businesses, and an education program for business owners about creating an exit strategy that revolves around selling the business to the employees – and training for the employees so that they can actually acquire and run a successful business.

I am sure Alex has more to offer, but I also know he is very busy right now, as we are considering what we might be able to add to a bond bill that would help worker co-ops in MA.

——————

You can also check in with Mo Mankling, who handles Policy for the USFWC and knows the WORK act inside and out.

Maggie

Aaron Olson

Wow, that's a great opportunity Hunter!

Reading the list of activities to be funded by the Work Act, it seems like the direct beneficiaries of those grants would be organizations like Fuerza Laboral, Social Enterprise Greenhouse (SEG), etc. that provide support for businesses looking to increase democratic governance/ownership (not specifically I mean, but that's under their broad umbrellas).

I mention that because I think maybe the only way we can have an influence on how this money is spent is either (A) apply for the money ourselves to achieve our goals or (B) work with an established organization that will apply for these funds and persuade that organization to offer programs that would achieve our goals. At the state level, they may just decide which orgs receive the grant funding, not precisely how it's spent.

Option (A) is obviously difficult because we don't really have a formal organization or staff. One or more people looking for such a role could draft a proposal and if it's funded, they'd have a full-time income doing that work for the duration of the grant. Not sure if anyone is in a position to do that currently. But this could could provide an exciting means to jump start our organization and fully fund a staff.

Option (B) is easier since we'd work with already existing organizations. But of course, we'd then have less say in how the money, if granted, is spent. The Work Act has been around for a bit it seems- have any orgs in RI already received grants from the Work Act already?

I think hanging over all of this is what our goals actually are... From all our conversations so far, I get the impression that the main challenge many of us have is simply raising capital to start a co-op, buy out an existing business/organization as a co-op, or grow an existing co-op.

Since this funding likely can't be used to directly fund actually starting/converting a business, I think the next best thing would be to use these funds to provide research and guidance that lowers costs and barriers of raising capital in other ways.

One example is the extensive legal work that the cannabis co-ops are having to fund just to start up. If a co-op supporting organization funded by the Work Act could fund that type of work for any general co-op (I know not all of that is generalizeable, but some could be) and make it freely available, it would lower barriers and costs for everyone. An analogy is an organization like SEG providing low or no-cost general business mentoring (i.e., their accelerator) to new businesses funded by public grants rather than each business having to pay full price for private individual consulting.

Another example would be paying someone to organize events and infrastructure to bring together and increase networking among people interested in starting a co-op. Such as a statewide networking event solely for people interested in cofounding a salon/barber shop co-op (repeat for other industries). If you have 10 members at the start vs. 1, you potentially have 10x the capital. But finding the right 10 people is a big challenge. That's an advantage of ESOPs- you already have an existing team, knowledgeable in that industry who could potentially take over (if they're actually interested in governance...).

Those are my intial thoughts... :) thanks for starting this conversation Hunter!

Aaron

Andre

I haven't looked through the slides yet but 

1. Co-op Rhody is a perfect thing to invest in

2. As I'm sure you know the main benefits of co-ops over esops is the lower set up and maintenycost and the same tax advantages through a 1042 rollover 

This is a great opportunity, Hunter!

Raul

Hi Hunter,

I can give you more context on this. 

In April, we presented with Steve Storken from https://www.eoxnetwork.org/, who the Lt Governor invited to talk at the Small Business Advocacy Council Meeting. Steve works to help States establish a Center For Ownership, and RI is interested based on the number of small businesses and owners who will retire over the next decade.

So here are some suggestions for you to bring up

• Talk about conversion 
• Talk about the coalition.
• I am sure the ESOPs will come up, and that's great, but it is not a model that would work for the businesses/cooperatives we work with. That is for the business to decide.

Sanjay

That’s exciting Hunter! Maybe suggest an innovation fund that supports research & development towards building co-ops at scale in key sectors? 

Connor

Tea, just as a reminder, you are someone who has put a lot of time and dedication into the worker co-op movement in RI, you're a native rhode islander!!!, and you have built a lot of positive relationships with people across the RI Worker Co-op movement from the cannabis co-ops to the scrappy little nursery co-op.

And that as a representative of the worker co-op business community, you recommend that the Lt. Goverenor's team meet with representatives from across the movement. It seems from the powerpoint that her team does not know a lot about worker co-ops specifically and would benefit from knowing the unique advantages that worker co-ops offer over ESOP's. Some of the benifits over ESOP's are increased leadership within historically advantaged communities (queer, BIPOC, women) , increased worker happiness and satisfaction with lower turnover rates of workers, and social equity?

Also, so you can officially declare yourself a representative of the co-op business community, please sign Commonplace on to the first Worker Cooperative Business Association in RI here: https://forms.gle/Gvt8QGvCfc23kWCm7  :p

Chloe

Thanks Hunter for bringing this to the group, and nice to hear everyone's thoughts! Also, thanks Raul for that context. I was guessing Fuerza had some role in this, as I'm aware Lt. Gov Sabina Matos has been a supporter and ally to Fuerza and worker coops for years. When she was running for Lt. Gov, she stopped by our cafe (as a customer) and I directly advocated for worker co-ops with her (knowing she had this history), so it's great to have an ally in that position. 

As you all have noticed and mentioned, it does seem like they are pushing ESOPs. I would definitely advocate for more support for worker coops, without tearing down ESOPs, because those are great options too, where a worker coop might not be possible or desired. I also wonder if there's some data to show that worker coops have most / all / more of those same benefits as were displayed in the slideshow, in reference to ESOPs. The biggest pro & difference for worker coops is the cooperative/democratic decision-making that is innate to the structure (which, as a participant in such a workplace, I can't imagine ever "going back" to a more traditional structure!)

With funds coming through, I do think we should strongly advocate for direct funding for worker coops, through grants (ideally) and/or low-interest or forgivable loans. As folks who have started coops know, funding is absolutely the biggest hurdle in many situations. Ways the Lt. Gov & Gov could support worker coops longterm, beyond the federal funds (which may be limited to a certain time frame), would be through policies & legislation & state budgets that monetarily support and/or give tax breaks, etc. to worker coops. 

I also agree we could ask to get something for our budding RI Worker Coop group, to help build a beginning infrastructure (however we determine that should be). As I've mentioned before, I would love to see stipends for worker-owners at existing worker coops to participate in meetings and peer networks, to share lessons and guidance with each other, as well as for aspirational worker co-ops. I'll reiterate, I think that's our strength and unique position, as compared to other (and wonderful) existing coop advocacy orgs like Fuerza Laboral, who are gearing up to continue to build on their own coop support structures. How we'd like to use any funding is definitely something we should consider as a group, and hopefully we can meet again soon in the coming weeks / months. 

Hope the meeting goes well, Hunter, and looking forward to connecting more with y'all soon!

Chloe / White Electric Coffee Co-op

TJ

Hunter as for the cannabis industry coop it would be very helpful if the state would help worker owned coop succeed by offering tax incentives, either in the form of rebates or rate reductions based on a few things.

Paying a living wage, providing health care, and providing a defined benefit pension plan. 

Each of those should reduce the companies tax rate by 5 percent and a total of 15 percent tax elimination. This not only will reward worker coops for giving back to their communities but it will incentivize your competitors to pay up as well this leveling your playing field. 

Maybe toss any kind of tax relief out there and work your way into specifics.

Good Luck Brother.

TJ 

Deb

Hi Hunter:

This is a great opportunity.

Shortly after passage of the WORK ACT, I had conversations with the DC staff implementing this program when their office first opened at the DOL EBSA. An important thing for you to know is that the staff there saw their mission as helping other types of EO besides ESOPs as well.

Key points to make w/ the Lt. Gov. about why any program they create should have a broader focus than ESOPs, especially co-ops and EOTs are: ( I am happy to talk about this more with you or State staff if desired.)

1. First, I am not opposed to ESOPs and have been ESOP counsel to a number of businesses. I also served as board chair of an 100% ESOP company with 80-100 employees for 10 years. However, there are a number of reasons to support co-ops and other types of EO as well, especially is a small state.
2. ESOPs are expensive to create and maintain. Therefore, only companies with a tax appetite large enough to cancel out these significant costs can afford them.
3. Unlike co-ops and EOTs, ESOPs are ERISA pension plans intended to be run for the benefit of the employees AS RETIREES, not as EMPLOYEES. What this means is that:
   1. When VCs come around with offers to buy an ESOP company at more than the current ESOP valuation (a common practice), the ESOP trustee can be forced to sell due to a legal obligation to get the best valuation for the ESOP participants. The trustee is not supposed to take into consideration maintenance of current jobs. However, a co-op or EOT can decide that it will be perpetually employee owned and cannot be forced to sell by outside buyers.
   2. An ESOP company may be forced to sell because it cannot otherwise handle its “repurchase liability”. A non-publicly traded ESOP company is required to repurchase all stock from its vested employees when they retire or leave the company.  This often becomes a large financial burden on the company. When an ESOP company is very successful, and its value is high, it may need to sell the company to have the cash to cover its repurchase liability. Its ability to reinvest in itself is also hindered by the repurchase liability.
4. For many small companies, a co-op or EOT, despite the fact that it does not get the tax benefits provided to ESOPs, may be considerably less expensive to create and maintain. It is also much simpler to explain to the employees. Also, the employees need not wait until they retire leave the company to get their portion of the profits. In both co-ops and EOTs, profit sharing is paid frequently, while the employees are working at the company.
5. Therefore, co-ops and EOTs are: simpler, cheaper, and can be designed to be perpetually employee owned, unlike an ESOP.
6. The RI Cannabis law created licenses set aside for worker co-ops and provided for labor peace. This caused the UFCW to invest in hiring Emma, and brought me, Pat, Eduardo and other resources to help you and other local people in RI to create a cannabis co-op ecosystem. The impact of our work to date, is laying the groundwork for a substantial and broad worker co-op eco-system in RI. Supporting the development of that eco-system (such as providing funds to Coop Rhody and investing in the CEOF or RI operating company), will provide a key resources for the burgeoning and much needed worker coop movement in RI.
7. The RI cannabis coop eco-system, may make RI one of the few states that are able to help social equity people successfully create businesses that will provide the majority of their wealth creation for social equity folks and communities (avoiding the problems that have arisen in other states where no such eco-system existed before the licenses were issued). This could make RI a model for doing this right throughout the country.
8. The cannabis licenses may all be issued in a short time frame. This provides advantages to the MSOs (who already have substantial resources) and disadvantages the co-op and social equity folks who need to raise funds for their start-up dispensaries and to train the social equity co-op members. Therefore, an investment by the State (soon) in Co-op Rhody and CEOF, could well make the difference between RI being the great example it can be of doing social equity right, or being plagued by the same problems that have occurred in so many other states.

Hunter’s response:

Looking into RI employer/employee stats right now. 

"The largest employers, those with 1,000 or more employees, numbered 30 (0.1%) and employed 15.9 percent of Rhode Island's private sector workforce. Smaller employers, those with less than 20 employees, represented 92.0 percent of all employers in the state and employed over one quarter (26.9%) of the workforce." Source

Many of the biggest employers are longshots at best for ESOP treatment, and I imagine outright impossible in many cases, certainly on the 5-year timeline of the WORK Act. Although I'm not sure exactly what types of firm/employer are on the 'impossible' list— eg. could [parts of] Lifespan Medical Group be an ESOP? Any [parts of] private universities like Brown? 

It would be interesting to figure out what actual percentage of the RI workforce could join an ESOP vs EOT vs worker-owned co-op. 

Regardless, the numbers seem to strongly validate our thesis that worker co-ops have an opportunity for bigger impact, even before taking cannabis into account. Especially following the logic of the Lt. Gov's powerpoint: that many RI business owners are going to retire soon and could transition. An overwhelming percentage of those baby-boom owners are proprietors of small businesses that could easily be co-ops. 

Emma

obviously expressing the magnitude of opportunity in worker ownership created by RICA …. and that Co-op Rhody is  one of two orgs in the state doing co-op development, and is focused on cannabis, therefore making grant $$ available to cannabis projects is critical, this is a hotspot of co-op organizing in RI etc

I sent you the deck from our meeting yesterday a while back. the last page explains the loophole in the RI co-op statute that would allow “co-ops” to pay out 100% of available profits to external nonmember shareholders indefinitely. doubt that this sort of nitty gritty legal policy making is of interest to them, but also they should understand that policies/programs made available based on compliance with that statute aren’t going to be exclusive to co-ops that ACTUALLY pay out meaningful wealth to workers, which is one of two (imo) foundational pillars of why co-ops are good (other one being democratic governance)

Sarah Assefa (COWOP)

Good luck, if you have not already had your meeting, here are some talking points from one of our toolkits. 

https://docs.google.com/document/d/1FnnqFHvX3zi8jjwXoQPkzl5pzWanBIFL37bjD4pRMJ8/edit

Best of luck! Bringing cooperation to power... 

Alex Papali (COWOP)

In MA, the state has a Mass Center for Employee Ownership supporting both worker coops and ESOPs (though in practice not a ton for either...).  That is growing with the passage of the MassCEO Enabling Act in 2022, and the creating of an Advisory Board consisting of coop and ESOP stakeholders plus several key relevant agencies.

It's been a bit of a bear to shift the culture to be more transparent and take direction from stakeholders- what helped was the intervention of friendly state legislators who helped demonstrate our power.  Also very helpful is strong coalition infrastructure, with active participation of the ecosystem, and dedicated staffing and budget to help shepherd bottom-up democratic decision-making.