|State Budget Funds Office to Increase Employee-Owned Businesses|
|By Andy McKeever, iBerkshires Staff|
06:40AM / Saturday, July 15, 2017
|The office has been dormant since 2008 when the state cut the budget.|
State Rep. Paul Mark filed a budget amendment to restore the funding for the Office of Employee Involvement and Ownership in past seven consecutive years.
DALTON, Mass. — Adam Vartikar grew up in a family-owned business in Brookline and now his parents are looking to retire.
But neither he, nor any of his siblings, want to run it. Vartikar has a close relationship with the employees and doesn't want to see his parents close the doors or sell out to a company that will move it away.
So he thought he'd help sell the business to the workers. He found out it is not that easy.
"You have this great, elegant solution for business succession but you have a problem with things like how to get a loan," Vartikar said.
That office had been in existence for 20 years and provided expertise in converting businesses to employee-owned models or starting employee-owned models. After talking with numerous people and companies about why the model wasn't taking off, Vartikar determined that the office is the best way to encourage those type of businesses.
State Rep. Paul Mark, D-Peru, on the other end of the state from Vartikar, had come to that same conclusion.
"It was created in 1989 by former Senator [David] Magnani and exists to help small business convert to cooperatives, employee stock ownership models, employee-owned models. It had a good track record. It was in operation for 20 years," Mark said. "Then in the recession, it was zero funded. When I first got elected I was really interested in co-ops. There are a lot of co-ops in the eastern side of my district and out here as well. I was told that this was the No. 1 thing you could do to help co-ops."
Mark filed a budget amendment in 2011 to restore the office. It wasn't adopted. In 2012, he filed again and it wasn't adopted. Nor was it adopted in 2013, 2014, 2015, or 2016.
"For six years this was me doing it on my own, completely on my own. For six years it was me on the House side, I'd get co-sponsors, sometimes it'd get traction, sometimes it wouldn't. And then on the Senate, there was nobody to take on the lead," Mark said.
In the southeast corner of the state, Julien Cyr was recently elected to the state Senate. The freshman Democrat from Truro had grown up in a family-owned business so when the idea of restoring the office came to him, he took the lead on the Senate side.
And now, after being defunded for nearly a decade, the state budget has $150,000 to resurrect the office, thanks to Mark, Cyr, and advocacy efforts from people like Vartikar.
"Finally on the seventh try it was included in the budget we just sent to the governor," Mark said. "It is one of my original pieces of legislation."
Christopher Mackin ran the Office of Employee Involvement and Ownership for eight of those years and said more than a dozen companies were able to convert to employee-owned models during his tenure.
"It helped bring companies to the table that otherwise wouldn't explore it," Mackin said.
Mackin performed the duties on a contractual base, said the work was the equivalent of a full-time staff member providing coaching to companies. He said he'd promote the idea by speaking with Chambers of Commerce and at events. He'd consult with some 60 companies about the concept every year.
When going to an employee-owned model, there is a required assessment of the business, of which the office would cover half the cost. The federal government provides tax incentives for those type of models, and Mackin would help tap into that resource as well.
"The idea of selling internally is not a well-understood option," Mackin said. "It takes some explaining and presentation of the facts ... You're not going to get more companies to do this unless you have people telling the story."
The office not only helped companies convert to employee-owned models but also helped new businesses looking to start up with that type of model. Mackin said there are multiple options, with the most popular being employee stock ownership plan, which he explained to the interested businesses.
Cyr said he understands the challenges of making such a transition firsthand.
"I know from my own family's experience the challenges that proprietors of small businesses face during an ownership transition," he said.
"The return of the MassEIO will give more business owners the information they need to sell to their existing employees, keeping their business legacy intact, and spreading the opportunity for wealth creation. I am glad to have partnered with Rep. Mark, former Sen. Magnani, and leaders of employee-owned businesses across the commonwealth to get this done."
Mark said the office also helped provide training, develop business plans, provide the legal work to usher through the actual sale, and even helped secure capital.
"Instead of selling it out to a big corporation and having them move it away and get rid of the jobs, the employees are interested in buying it. This office helps get them the financial skills they need to take over the business, the legal information they need, it helps them with capital if there are any loans that they need, and it helps them set up a new business model," Mark said.
Mark said he likes employee-owned models because it keeps jobs and revenue local.
"When they're looking for a co-op model they are making a statement. This is a business that is never going to move to China. We're never going to outsource. We are local, we care about the local economy, we care about the local community," Mark said.
"For me, that's a business I want to support. I want to give them my business. I want them to stay here and I want the profits going back to the people who work there and live in our region."
Mark had again filed the amendment for the budget this year and he got in touch with Vartikar, who created the Working Wealth Coalition. The coalition advocated heavily for the funding. Vartikar said he reached out to Harpoon Brewery, an ESOP, which joined in the advocacy efforts. The coalition gathered supporters and businesses to write letters to legislators. Vartikar even went to the State House and knocked on office doors.
"We reached out to everyone we could," Vartikar said. "We just kept up the pressure. When the budget went to conference committee, we sent even more letters."
Throughout the entire process, Varikar became ever more aware of the difference between wealth and income. He said while the employees in his family's company were paid well, but they didn't have the equity to purchase a business. The office is the key piece to helping the employees put together the needed package to do so.
"The state centers are the most impactful thing that can happen to spread the knowledge and expertise about employee ownership," Vartikar said. "It is the lowest cost, highest reward."
And it is no surprise that the four states with similar offices have the highest percentages of employee-owned businesses.
Vartikar added that employee-owned models aren't just good for the community and for the businesses, it is good for the employees who go to work every single day. He said the model gives them the same feeling going into work every day as business owners have.
"When employees own what they are doing, it completely changes the way they go to work," he said.
Mark said the language was adopted into the budget, and he hopes the governor doesn't veto it, and the next step is determining exactly where it will be housed. It was originally in the Commonwealth Corp., then became a contracted service in 2000, and now it will be running either in a state agency or in higher education. Exactly where it will be housed will be determined by Housing and Economic Development Secretary Jay Ash.
Mark is particularly keen on possibly housing it within the University of Massachusetts system. There'd be access to other economists and students who can intern and take on projects with the office. And there is the obvious opportunity to include a workforce development piece into the program.
"I like the idea of a college because I like that there is a lot of personnel on hand to offer expertise in both directions," Mark said.
In the future, Mark hopes there will be a way to create self-sustaining income, either through loan programs or through a membership base. He added that the office can help build a larger network of employee-owned businesses to help each other out.
"As a state, this is a good statement to make, we support this kind of business. We are interested in small business, of course, and I'd rather spend money on something like this, on a business that is going to stay local rather than give a big tax write off for GE who might leave again," Mark said.
Mackin operated the office on $127,000, which was a small amount to cover the entire state. But, as a contractor, he wasn't in the position to advocate for more funding. He says there is the opportunity to grow the office's operation.
"You can get something started with this but you have to grow it," Mackin said.
The money to start it back up is now sitting on Gov. Charlie Baker's desk awaiting a signature. There is a chance it is vetoed, but Mark said he believes there is enough support in the Legislature to override that veto should it come to that.