Employee Ownership in the American Rescue Plan

By:

  • Kyle Funk
  • Zen Trenholm
  • Melissa Hoover
July 16, 2021

At this moment, local leaders are positioned to incorporate employee ownership into their local COVID-19 recovery strategies for small businesses. By converting existing businesses to employee ownership, municipalities have an opportunity to preserve jobs and their tax base while increasing local ownership and wealth in their communities, especially for communities of color who have been historically excluded from lines of credit, grants and technical assistance.

ARPA’s funding for small business assistance is inclusive of employee ownership, and there are several specific measures where ARPA funds could be used to advance technical assistance and capital access for employee ownership:

  • ARPA funds can be transferred to a private nonprofit organization to provide business assistance services for employee ownership of businesses. This could be used to fund qualified nonprofit service providers that specialize in employee ownership technical assistance. Municipalities receiving an allocation from the Coronavirus State and Local Fiscal Recovery Funds should consider this option. The city of Buffalo, NY is planning to provide $3.5 million from their ARPA funds to support minority-owned businesses through the Beverly Gray Business Exchange Center which will create grants for current minority-owned businesses, technical assistance for entrepreneurs, and funding for new start-ups. 
  • ARPA can assist communities nationwide in advancing their coronavirus recovery and resiliency strategies.  ARPA allocated $3 billion to the U.S. Department of Commerce’s Economic Development Administration on (EDA).  The EDA funds can be used to capitalize or recapitalize revolving small business loan funds. Cities can use this funding to create or augment existing revolving loan funds to finance employee ownership transitions or growth. In 2019, the City of Berkeley amended its EDA funded revolving loan program to remove obstacles that precluded worker cooperatives from accessing loans that were available to all other small businesses by implementing an alternative “loan guarantee panel” composed of employee-owners that collectively owned at least 50% of the company. 
  • ARPA can assist local leaders from rural communities. Section 1006 of  ARPA appropriates $50.5 million for development in socially disadvantaged communities and can be used for cooperative training and support along with other technical assistance on issues concerning food, agriculture credit/extension, rural development or nutrition. Rural areas of the country have long been home to cooperatives and targeted investments in socially disadvantaged communities can assist in closing rural racial-wealth gaps. The Department of Agriculture will be working over the next few months to write regulations specific to sec. 1006. To learn more about sec. 1006, click here. 
  • ARPA can support small business capital needs. Ten billion dollars through the State Small Business Credit Initiative (SSBCI) were authorized for states, territories, and tribes to deploy to businesses through capital providers. So far $6.2 billion in capital has been allocated to states and territories. The SSBCI also includes $500 million in technical assistance and some additional funds may be set aside at the federal level. The SSBCI legislation went to the Treasury from Congress with the directive to use the funds to support employee ownership technical assistance. Municipalities interested in employee ownership, but lacking local technical assistance should look to these funds as one source of support for their small businesses. States such as OhioVermontCaliforniaNorth CarolinaMassachusetts and Pennsylvania already have strong state employee ownership centers; more are likely to come online through the SSBCI. Local leaders can advocate that these state dollars be used for employee ownership technical assistance in their communities. Treasury will be writing the regulations this year to shape the program and the Democracy at Work Institute (DAWI) and NLC will be communicating how cities can connect to their state SSBCI programs to specifically support employee ownership.

For more information on general economic recovery and employee ownership visit NLC’s SEED page.

Learn More

The next webinar in the National League of Cities and Democracy At Work Institute’s Shared Equity in Economic Development Series will take place on July 27, 2021, and will examine further how ARPA funds can be used for employee ownership support.

About the Authors

Kyle Funk

About the Authors

Kyle Funk is a Program Specialist for Housing & Community Development at the National League of Cities

Zen Trenholm

Zen Trenholm is the SEED Program and Policy Manager at The Democracy at Work Institute

Melissa Hoover

Melissa Hoover is the Executive Director of the Democracy at Work Institute.