How do we get there ?

The cooperative model has helped citizens meet their needs for better jobs, healthy local food, affordable housing and other basic needs, and in the process built stronger, more resilient economies and communities. From the development of the cod fishery into one of Maine’s largest industries, to bringing electricity for the first time to millions of rural Americans, to the development of Maine’s developing reputation as the “food basket of New England”, cooperatives have brought people together and turned their shared needs into shared accomplishments, in ways that no other business was willing or able to do on its own.

In every case, committed individuals with a real stake in the outcome are central to success. However, another factor played a critical role in their success: a supportive ecosystem of public and private institutions, policies, incentives and finance.  Other regions with much stronger cooperative sectors have seen impressive outcomes: stronger economies and communities, higher wages, more innovation and entrepreneurship, and lower levels of inequality.

If our goal is to create a prosperous, equitable economy where all Mainers can meet their needs and aspirations by 2030 – a time when today’s children will be seeking to make their own way in the world – then we need to learn from these examples and replicate the best of these ideas here in Maine.

Here are five goals and 12 strategies to improve our economy today and set the next generation up for success.

Goal 1: Make Cooperative and Employee Owned Businesses a Public Policy Priority

All politicians talk about strengthening the economy, supporting business development and creating jobs as one of their highest priorities. And most Maine foundations and philanthropists are dedicated to strengthening our families and communities and promoting an equitable, prosperous economy. So let’s focus our resources on a practical, proven, cost-effective strategy to accomplish those things.

Strategy 1.1: Our Governor and Legislature should direct state agencies dedicated to business, community and workforce development to review their programs and prioritize support for cooperative and employee owned enterprises.

Maine spends hundreds of millions of dollars per year (both directly and through the tax code) supporting economic development, and agencies and publicly funded business development programs have strategic plans that guide their work. Many of these programs are targeted toward an array of specific types of businesses, sectors, regions, populations, and so forth. Given their successful track record, we believe the development of cooperative and employee owned businesses should be a public policy priority, too.

Additionally, agencies need to ensure the rules of existing financial and technical support programs don’t make it more difficult or even impossible for cooperative and employee owned businesses to access them. As one example of how this has happened, the US Department of Agriculture recently revised eligibility rules for the Business & Industry Loan Guarantee that made many businesses converting to employee ownership ineligible. The B&I Loan Guarantee is a critical leveraging tool for businesses in rural America to access capital. USDA realized that conversion to employee ownership is also a critical tool for sustaining businesses in rural America and fixed the rules.

Strategy 1.2: Foundations and philanthropists can help create the foundation of awareness, skills and policy upon which Maine people can build successful, sustainable cooperative and employee owned enterprises.

Philanthropy plays a critical role in improving the lives of Maine people, and in funding pilot projects and new ideas that can, if successful, be taken to scale by the public sector. Key leverage points that Maine philanthropy could impact include:

  • Education and outreach, so more Maine people understand the unique benefits of cooperatives and the basics of cooperative business development.
  • Technical assistance for rural, low-income and immigrant communities, so that the benefits of cooperative development reach the regions and populations most in need.
  • Policy research and development, so policymakers have the information they need to make good decisions.

Goal 2: Encourage Business Owners to sell to a cooperative or ESOP

When they are ready to retire, business owners can secure their legacy, reward the loyalty of their employees or customers, support their communities, and have an easier time exiting their business by selling to their employees through a worker cooperative or ESOP, or to a consumer co-op organized by the community. Along the same lines, mobile home park owners or owners of rental properties can help their residents secure affordable homeownership by selling to a resident owned cooperative. Oftentimes, ownership conversions can lower transaction costs, along with numerous other benefits. Unfortunately, a lack of awareness of this option and how to pursue it means business owners frequently aren’t considering all their options. So let’s incentivize conversion to cooperative and employee ownership and make sure every business owner has access to information and assistance to pursue this option.

Strategy 2.1: Make the sale of any business, farm, or mobile home park or rental property exempt from capital gains taxation if sold to a cooperative formed by their workers, customers or residents.

Incentivizing conversion to worker, consumer or resident ownership accomplishes a host of critical public policy priorities. Workers become business owners and build wealth, consumers can secure vital access to goods and services in their communities, and residents can achieve the dream of affordable home-ownership. It also rewards those who’ve built businesses in our state for doing the right thing after many years of hard work.

A similar, but more limited, incentive is already law at the federal and state level for the conversion of a C-Corporation to employee ownership, and has been since 1984 when President Reagan and a broad bipartisan majority in the Congress passed major employee ownership legislation. However, Maine has relatively few C-Corps so most of our business owners are at a disadvantage in this regard. We need to level the playing field so all business owners, no matter how they’re incorporated, are treated the same. Other states, including Iowa and New Jersey (with Missouri pending) have recognized the benefits of conversion to employee ownership and extended this benefit to all businesses, not just C-Corps.

Additionally, four states exempt the sale of mobile home parks to a resident owned cooperative from capital gains tax, and 4 other states provide other types of tax incentives for doing so.

Strategy 2.2: Establish a matching grant program for businesses to explore the feasibility of conversion.

There are upfront costs for feasibility studies, business valuation, and legal, accounting and development assistance that are required for a business to determine if conversion is right for them. A small matching grant to cover some of these costs can remove this hurdle. If we believe that broadening ownership is a public policy priority, then this pre-development phase is a key leverage point to unlock the potential for widespread adoption of the model.

Iowa governor Terry Branstad recently worked with a bipartisan group of legislators to create a $25,000 grant program (per business) to cover these costs. Ohio had a similar program, which they used federal workforce development money to fund. Massachusetts has a more modest grant program providing a 1:1 match up to $5,000.

Maine should follow the more modest example of Massachusetts and, additionally, the state should require the repayment of the grant if the business successfully converts to employee ownership.

Goal 3: Improve Access to Capital and Encourage Lenders to Lend

Cooperative and employee owned businesses face a number of unnecessary impediments in accessing capital from banks, credit unions and other lenders, and unfamiliarity with the model results in a perception of higher risk. So let’s remove the impediments and reward those financial institutions that are willing to lend on the fundamental strengths of the business.

Strategy 3.1: Invest a portion of our state’s deposits in Maine-based banks that have a commitment to lending to cooperative and employee owned businesses.

Maine’s treasurer has wide latitude in directing the state’s deposits to financial institutions that do the most good for Maine’s economy, while still fulfilling their fiduciary duties. There are a number of ways the state could do this:

  • While rarely if ever done, Maine law already directs the treasurer to deposit up to $4 million in financial institutions to be used for low interest loans to agricultural enterprises, and $4 million for certain small businesses. We need to actually use this provision of law, and could amend it to apply to loans for agricultural enterprises and small businesses organized as cooperatives and employee owned businesses.
  • Alternatively, we could follow the example of Indiana, where the treasurer used the state’s deposits to purchase certificates of deposit in financial institutions, who then used the new capital to make low-interest loans supporting employee ownership conversions. This program has incentivized lenders to lend and generated lower cost capital to employee owned firms.

Strategy 3.2: Make interest income from loans to cooperative and employee owned businesses tax exempt for Maine-based lenders.

This is not a new idea. The same federal legislation championed by President Reagan and passed in 1984 contained a similar provision, although that law applied only to the financing of employee ownership conversions. In the years following passage, there was a notable rise in the number of conversions and experts at the time attributed this impact primarily to the preferential interest rate provision in the 1984 legislation. Unfortunately, during the recession of 1990 and the ensuing budget cuts and tax increases, this provision was repealed.

Goal 4: Improve Education, Information and Training

If we want more Mainers to have a chance to meaningfully participate in our economy, then we need to improve access to education, information and training on entrepreneurship and cooperative development.

Strategy 4.1: Support the development of a Maine Employee Ownership Center.

Through education, outreach, and technical assistance, a Maine Employee Ownership Center would provide a powerful and cost-effective way to assist businesses that want to understand conversion to employee ownership and figure out if the option makes sense for them and their employees. A Maine Employee Ownership Center could provide direct business services, coordinate a clearinghouse of technical assistance providers with expertise in conversion, organize educational forums, and create peer-to-peer networks of existing employee owned firms willing to mentor those considering or executing this option.

Seven state Employee Ownership Centers exist today. The oldest among them is in Ohio, where they have successfully converted over 100 firms with roughly 15,000 employees at a tiny fraction of the cost of traditional public sector jobs programs. Some of these Centers receive a state appropriation and all of them leverage philanthropic resources to expand their reach. Maine should provide a grant to a nonprofit business development group with expertise in employee ownership conversion to create a Center in Maine.

Strategy 4.2: Make entrepreneurship, innovation and cooperative development an integral part of experiential, project-based learning opportunities in every high school.

Throughout our history, successful and resilient Mainers have had a strong entrepreneurial and innovative streak and knew how to work individually and with their communities to piece together a livelihood. If we want more young people to make their life in Maine, then we need to do a better job equipping them with the knowledge and skills needed to be successful here. Every high school student should have opportunities to gain real world experience through apprenticeships and internships with Maine businesses and nonprofits, gain academic, technical and soft skills in more innovative and personalized ways, and access a seamless pathway into post-secondary education and training.

Strategy 4.3: Develop an accredited curriculum for cooperative development that can be used in Adult Education, Career Centers, colleges, and other adult learning programs throughout the state.

We need to create low-cost, low-barrier opportunities for more Mainers, particularly in our most hard-hit rural areas, to gain the practical skills of cooperative entrepreneurship. While there are programs that teach basic business skills, these programs will continue to have a limited reach because the vast majority of Mainers are not going to start businesses on their own. For many people, the opportunity to start a cooperative business is much more feasible, and learning how to do it with other members of their community provides the opportunity to build social capital, network outside resources, and meet others wanting to do the same thing.

Strategy 4.4: Form a Maine Cooperative Business Association to advocate for and develop the sector.

In the spirit of the International Cooperative Principles previously detailed in this report, Cooperatives in Maine need to work together to create a trade association that can help all members better meet their needs and fulfill their missions. A Maine Cooperative Business Association would educate the public about the benefits the sector provides, and strengthen member co-ops by organizing technical assistance, peer-to-peer mentoring and networking, and assistance with workforce development, business planning and management, and improving financial literacy skills for members.

Goal 5: Increase procurement of cooperative goods and services by institutions

Colleges, schools, hospitals, nursing homes, municipalities, state government and other Maine institutions spend millions of dollars each year on goods and services from local and out of state companies.  If more of that money preferenced locally-owned businesses, we could increase market opportunities for and create more jobs within Maine’s businesses.  This, in turn, would provide opportunities for producers and workers to form new cooperatives that can better meet the demand by providing stable markets and collaborative relationships between the institution and the cooperative.

Strategy 5.1: Review existing purchasing of locally-owned goods and services by institutions, municipalities and state government.

Many institutions do not know how much of the goods and services they are buying are benefitting local businesses. A first action for these institutions would be to review their purchasing and develop a baseline of their current local purchasing. Institutions could use this data to then set individual or collective goals for local purchasing (such as the 20% local food by 2020 goal of the University of Maine System). Additionally, an institution could examine whether any of these local purchasing dollars are going to cooperatively-owned businesses.

Strategy 5.2: Build partnerships among institutions, philanthropy, governments, local businesses, business developers, and co-op developers to convert existing business or start new co-ops that can supply products and services to institutions.

In different municipalities around the country, new partnership are forming to increase institutional purchasing of cooperatively produced goods and services. In Cleveland, Ohio, the Democracy Collaborative worked with Case Western University, the Cleveland Clinic, the Cleveland Foundation and many other partners to create the Evergreen Cooperatives, a networked group of worker owned businesses that provide these institutions with commercial laundry services, solar power installation, and vegetables from a large hydroponic greenhouse. In Springfield, Massachusetts, the Wellspring Cooperative has created a worker owned upholstery business to service institutional furniture. In both examples, the focus is on creating job training and business ownership opportunities for low-income residents. In Maine, many institutions are deeply engaged with their local community in a variety of ways. This type of partnership takes that engagement one step further, as these institutions leverage their purchasing power to maximize the impact on job creation and economic development in their community.