Colorado Takes the Lead on EO
Hands down, Colorado has become the most employee ownership-friendly state in the country. With an existing state-funded outreach program that helps companies convert to employee ownership and one of the most active and effective nonprofit state employee ownership centers (The Rocky Mountain Employee Ownership Center or RMEOC), Colorado has created a national model for how states can help move employee ownership forward.
On June 25, Colorado passed a law that would help cover some of the costs to convert to employee ownership. H.B. 21-1311, a bill that would make sweeping changes to Colorado tax law, includes a provision to provide $10 million annually in tax credits over the next six years to fund the professional service costs of conversions to employee ownership (EO). The funds could be used to convert to an ESOP, an employee ownership trust, or a worker cooperative. ESOPs would qualify for a credit equal to 50% of the conversion costs up to $100,000; cooperatives and employee ownership trusts could get up to $25,000. The proposal was strongly supported by Governor Jared Polis, who has long been both an advocate for employee ownership and a practitioner, sharing ownership with employees in his prior career as an entrepreneur. The credit would only be available if the company actually sets up a plan.
In 2020, Colorado became the most recent state to create a state employee ownership center. Governor Polis created the Employee Ownership Office as a standalone center in the Colorado Office of Economic Development and International Trade (OEDIT). In its first year, the office helped shepherd two EO transactions. Just halfway through 2021, it has already assisted with 20transactions, a rate that would put Colorado well ahead of any other states in new EO conversions per capita. A state the size of Colorado might typically expect fewer than 20 conversions to ESOPs and worker cooperatives in a year.
The state office operates an “Employee Ownership Navigator” to provide advice to business owners about ownership models, as well as to connect them to local approved advisors. The office also offers a new certification for companies that provide ownership to 20% or more of workers. The companies will be included in statewide branding campaigns and will be listed on its website.
The state program received $1.75 million in funding in 2020 for a two-year period to cover the costs of a loan program to support employee ownership conversions as well as small grants to help pay for setup costs.
The loan program was based on a 2017 law signed by then-Governor (now Senator) John Hickenlooper that required OEDIT to engage the services of a local nonprofit to help support and provide outreach on employee ownership. The RMEOC was selected as the nonprofit. The law also set up the revolving loan program to assist transitions of existing businesses to employee-owned businesses. That fund is limited to $10,000 per company.
The Colorado story goes back to 2009 when Dick Peterson (a retired entrepreneur), Bill Kirton (a retired minister), and Larry Dunn (an IT professional) met with NCEO founder Corey Rosen after an NCEO seminar to talk about what they could do on a voluntary basis to promote employee ownership. After learning from Rosen about the effectiveness of state programs, Peterson, Kirton, and Dunn got to work to create what would become the RMEOC, which launched in 2010. Now with two full-time staff members and an active board, the RMEOC has received state and foundation support and has generated some fees. It works one-on-one with companies, makes resources available, and holds live and virtual events.
Colorado is not alone in programs like this—there are active state centers in Massachusetts, Vermont, New York/New Jersey, Pennsylvania, Ohio, North Carolina, Minnesota, Missouri, and Wisconsin, and nascent organizations in other states. Only Colorado and Massachusetts have legislated state funding, however. Some other states provide additional tax incentives for sales to ESOPs, but no state has a program like Colorado’s to help cover costs.
What You Can Do
The Colorado model has had bipartisan support. It did not happen because there was a well-endowed lobbying effort from major political players. It happened because a few dedicated people took the time to contact their state legislators and sell the idea. Legislators are looking for politically practical ideas that make a difference, and employee ownership certainly is that.