Small Business Committees in Both House and Senate Pass Employee Ownership Legislation

For the first time since the late 1970s, non-tax bills to promote employee ownership are moving in Congress. Two bills, both of which focus on the Small Business Administration, have passed in a committee without dissent, and both have bipartisan support. The NCEO worked with the offices of prime sponsors of the two bills, Senator Kirsten Gillibrand (D-NY) and Gary Peters (D-MI). Coincidentally, both bills passed on the same day, March 14, in separate committees, one in the House and one in the Senate. The bills are described below.

Main Street Employee Ownership Act
By unanimous voice vote, the House Small Business Committee passed the Main Street Employee Ownership Act (H.R. 5236), sponsored by Nydia Velazquez (D-NY) with a friendly amendment from Rep. Steve Chabot, R-OH)). The bill was initially developed by the office of Senator Kirsten Gillibrand (D-NY). The NCEO worked with Senator Gillibrand's office on the concepts behind the bill.

The bill is focused on increasing the role of the Small Business Administration in facilitating ESOPs. It allows the SBA to make loans to companies that they can reloan to ESOPs (prior law only allowed loans directly to ESOPs), allows ESOP loans to be made under the SBA's preferred lender program (a program providing for expediting processing of loans with cooperating private lenders), and updates the definition of ESOPs in the current law governing SBA loans so that ESOPs do not have to have full voting rights to qualify.

The bill makes an exception to an SBA rule that sellers of a company cannot have an ongoing role on the firm. It waives a current SBA requirement of a 10% equity investment in a business transition loan, and it allows financing to be used to cover transaction costs. The bill also makes it easier to loan to worker cooperatives.

Finally, it requires the SBA to coordinate with investment funds licensed through the SBA's Small Business Investment Company program and intermediary lenders through SBA's Microloan program to promote employee ownership as an area to consider for investment and lending. It also directs Small Business Development Centers to provide outreach and training on ESOPs, and it directs the SBA to set an interagency task force to develop further recommendations for promoting employee ownership.

The bill is expected to be introduced in the Senate by Senators Gillibrand and James Risch (R-ID), the chair of the Senate Small Business Committee. While predicting legislative success is always uncertain, prospects for this bill are encouraging.

Small Business Employee Ownership Promotion Enhancement Act of 2017
This bill (S. 1538), was introduced by Senator Peters and Risch. It directs the Service Core of Retired Executives (SCORE), an SBA outreach program, to promote employee ownership. No funds are appropriated for this purpose.

The bill directs SCORE to appoint an individual to serve as the SCORE Employee Ownership Director. The director will be responsible for "administering and disbursing materials that contain general information and technical assistance with respect to the establishment of employee ownership structures. . . . and coordinating efforts with respect to employee ownership with the chapters of SCORE located throughout the United States." SCORE is directed to provide technical and other educational materials as well as keep data on the extent of its outreach efforts.

SCORE CEO Ken Yancey supports the program, saying earlier this year that "Our volunteer mentors look forward to contributing their firsthand knowledge, gained through decades of business experience, to raise awareness of different exit strategies and models of employee ownership."