PRINTER'S NO. 3576
THE GENERAL ASSEMBLY OF PENNSYLVANIA
HOUSE BILL
No.
2888
Session of
2022
INTRODUCED BY INNAMORATO, ROTHMAN, HOHENSTEIN, HILL-EVANS,
SANCHEZ, N. NELSON, KRAJEWSKI, ROWE, MADDEN, FREEMAN,
D. WILLIAMS, DEASY, DeLUCA, CIRESI AND SIMS, OCTOBER 20, 2022
REFERRED TO COMMITTEE ON COMMERCE, OCTOBER 20, 2022
AN ACT
Establishing the Office of Employee Ownership within the
Department of Community and Economic Development;
establishing the Main Street Employee Ownership Grant
Program; and providing technical and financial assistance to
employee-owned enterprises.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Short title.
This act shall be known and may be cited as the Employee
Ownership Assistance Program Act.
Section 2. Definitions.
The following words and phrases when used in this act shall
have the meanings given to them in this section unless the
context clearly indicates otherwise:
"Department." The Department of Community and Economic
Development of the Commonwealth.
"Employee-owned enterprise." One of the following:
(1) A business that meets all of the following
conditions:
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(i) is organized as:
(A) an eligible worker-owned cooperative as
defined in the Internal Revenue Code of 1986 (Public
Law 99-514, 26 U.S.C. § 1042); or
(B) a corporation in which the employees own the
stock of the corporation through an Employee Stock
Ownership Plan, within the meaning of section 4975(e)
(7) of the Internal Revenue Code of 1986.
(ii) a majority of the voting rights are held by
employees and all employees who have stock allocated to
them are entitled to vote; shares are voted in such a
manner that the vote of the majority of the employees
controls the vote of the majority of shares; voting
rights on corporate matters for shares held in a trust
for the employees shall pass through to those employees,
at least to the extent required by the pass-through
voting requirements of section 864(c)(4)(D) of the
Internal Revenue Code of 1986; and
(iii) the majority of the members of the board of
directors are elected by the employees.
(2) A business that is organized in a manner determined
by the secretary to involve substantial employee
participation.
(3) An employee-ownership trust.
"Employee-ownership group." A corporation or other entity,
including a labor union formed by or on behalf of the current or
former employees of an industrial or commercial firm or facility
located in this Commonwealth for the purpose of assuming
ownership or control of the firm or facility, and operating it
as an employee-owned enterprise.
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"Employee-ownership trust." Company stock or profit sharing
being held by a trustee on behalf of the company's employees
with employees receiving a percentage of ongoing profits or
401(k) retirement plans throughout employment without receiving
an equity stake in the company.
"Local administrative agency." An organization that enters
into a written agreement with the department to administer
technical and financial assistance under this act, including:
(1) A municipality.
(2) A local development district of the Appalachian
Regional Commission.
(3) A certified economic development organization
certified by The Pennsylvania Industrial Development
Authority under 64 Pa.C.S. § 1123 (relating to certification
of economic development organizations).
(4) A nonprofit economic development organization
designated by the secretary.
"Office." The Office of Employee Ownership established under
section 3(a).
"Secretary." The Secretary of Community and Economic
Development of the Commonwealth.
Section 3. Office of Employee Ownership.
(a) Establishment.--The Office of Employee Ownership is
established in the department to serve as an advocate for
improving government knowledge and support for well-designed,
broad-based profit-sharing and ownership stakes. The office
shall increase awareness of how agency programs affect companies
with profit-sharing and ownership stake programs and promote
legislative or regulatory changes necessary to ensure that
government policies encourage the adoption of existing and
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emerging sharing programs.
(b) Gubernatorial appointment.--The Governor shall appoint
an employee ownership advocate. The employee ownership advocate
shall be an individual who by reason of training, experience or
attainment is qualified to represent the interest of employee-
owned enterprises. The following shall apply:
(1) No individual who serves as an employee ownership
advocate shall, while serving in the position, engage in any
business, vocation or other employment, or have other
interests, inconsistent with the individual's official
responsibilities.
(2) The individual serving as an employee ownership
advocate may not seek or accept employment or render
beneficial services for compensation with any person or
corporation, as defined in 66 Pa.C.S. § 102 (relating to
definitions), during the tenure of the appointment and for a
period of two years after the appointment is served or
terminated.
(3) An individual who is appointed to the position of
employee ownership advocate may not seek election or accept
appointment to any public office during the tenure as the
employee ownership advocate and for a period of two years
after the appointment is served or terminated.
(4) The employee ownership advocate shall oversee the
office and the programs established in this act.
(c) Duties.--The office shall aid and guide businesses on
the benefits and formation of an employee-owned enterprise by
providing outreach, education and technical assistance. The
office shall:
(1) Establish a robust and wide-reaching network of
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technical support for businesses wishing to convert to an
employee-owned enterprise.
(2) Prepare and make publicly accessible in print and on
the office's publicly accessible Internet website information
to educate and guide business owners and employees in this
Commonwealth on the benefits and formation of employee-owned
enterprises.
(3) Educate businesses and communities across this
Commonwealth on the economic and community benefits of
employee-owned enterprises.
(4) Identify barriers to the development and advancement
of employee-owned enterprises and recommend State actions and
resources to remove barriers.
(5) Gather and maintain statistics on all employee-owned
enterprises in place across this Commonwealth.
(6) Evaluate and submit a report by December 31 of each
year to the Community, Economic and Recreational Development
Committee of the Senate and the Commerce Committee of the
House of Representatives. The report shall include:
(i) The results of the office's efforts, impacts and
benefits.
(ii) A list of all employee-owned enterprises in
this Commonwealth and the counties in which the employee-
owned enterprises are located.
(iii) Recommendations on the most effective
utilization of Commonwealth funding to encourage the
formation of employee-owned enterprises.
(iv) Other information deemed necessary by the
employee ownership advocate.
(7) Select and fund a Pennsylvania 501(c)(3) nonprofit
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organization defined under section 501(c)(3) of the Internal
Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 501(c)
(3)) with well-established knowledge of employee-owned
enterprises to work with the office and the department to
ensure the execution requirements under this act.
Section 4. Technical and financial assistance program.
The office shall establish a technical and financial
assistance program to promote the development of employee-owned
enterprises.
Section 5. Technical assistance.
(a) Authorization to allocate funds.--The office may
allocate or distribute money to local administrative agencies
for the purpose of providing grants and loans to employee-
ownership groups in industrial facilities and commercial
facilities as defined in section 3 of the act of August 23, 1967
(P.L.251, No.102), known as the Economic Development Financing
Law, for technical assistance to develop or improve an employee-
owned enterprise.
(b) Eligibility.--An employee-ownership group shall be
eligible for assistance if the employees in the employee-
ownership group are employed by, formerly employed by or
affiliated with one of the following:
(1) An existing firm facing a threat of substantial
layoffs or a plant closing and investigating a reorganization
of all or some portion of the firm's business activity, at
sites located within this Commonwealth, as an employee-owned
enterprise. For purposes of this subsection, the term
"existing firm" shall include an ongoing concern, the assets
of an existing company or the assets of a company that has
been closed for no more than one year as of the date of
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application for the feasibility study loan.
(2) An existing firm, not necessarily facing a threat of
substantial layoffs or a plant closing but considering a
conversion to an employee-owned enterprise and seeking
professional services to accomplish the conversion if
conversion to employee ownership will create new jobs or
retain existing jobs at sites in this Commonwealth.
(3) An existing firm which currently has some form of
employee ownership and requires professional services to
ensure success of the employee-owned enterprise in the effort
to create new jobs or retain existing jobs at sites in this
Commonwealth.
(c) Use of awarded money.--An employee-ownership group may
be awarded sums of money for the following purposes:
(1) Feasibility studies to investigate a reorganization
or new incorporation as an employee-owned enterprise. At a
minimum, the feasibility study shall:
(i) Assess the market value and demand for the
product produced by the plant affected by the closing or
layoff.
(ii) Assess the market value and demand for other
products that could be manufactured or assembled at the
plant affected by the closing or layoff.
(iii) Evaluate the production costs to be incurred
if the plant were to be operated by the employee-
ownership group.
(iv) Determine whether there exists in the affected
area and in the employee-ownership group the desire and
capacity to create a new production entity and to become
competitive.
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(2) Professional services to implement a feasibility
study and other professional services to develop or ensure
the success of an employee-owned enterprise.
(d) Repayment of awarded money.--Money awarded to an
employee-ownership group under subsection (c) is subject to the
following repayment conditions:
(1) If the enterprise studied is purchased or improved
by the employee-ownership group, the sum of money awarded
will constitute a loan and the employee-ownership group shall
repay the entire amount of the loan, with interest, in a lump
sum at the closing of the purchase of the company or within
one year after the date of the release of the loan by the
office, whichever occurs later. The amount of the loan repaid
shall be returned to the office for the purpose of issuing
additional loans. The interest paid on the loan shall be used
by the office for administrative costs associated with
administering this act.
(2) If the enterprise studied is not purchased by the
employee-ownership group within one year after the completion
of the feasibility study, the applicant shall submit a final
report concerning the feasibility of repaying the awarded
money.
(3) The office shall evaluate the employee-ownership
group's final report under paragraph (2) to determine if
repayment is feasible. If the office determines that the
employee-ownership group is unable to repay the sum of
awarded money, the amount of money that was awarded to the
employee-ownership group will constitute a grant. If the
office determines that the employee-ownership group is able
to repay some or all of the money awarded, the amount of
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money that was awarded to the employee-ownership group will
constitute a loan.
(e) Other conditions.--
(1) The applicant shall provide evidence that there is a
prospect for recovery and future job growth or job retention
in applications under subsection (b)(1) or a substantial
prospect of job growth or job retention in applications under
subsection (b)(2) and (b)(3).
(2) Maximum State participation shall be 50% of the
total cost of the technical assistance and the maximum loan
size shall be $100,000.
Section 6. Financial assistance.
(a) Authorization to allocate funds.--The office may
allocate or distribute money to local administrative agencies
for the purpose of providing loans and loan guarantees to
employee-owned enterprises reorganizing industrial facilities,
manufacturing facilities and agricultural enterprises as defined
in section 3 of the act of May 17, 1956 (1955 P.L.1609, No.537),
known as the Pennsylvania Industrial Development Authority Act,
for the development of employee-owned enterprises.
(b) Eligibility.--Eligibility for assistance shall be
limited to an employee-ownership group reorganizing an existing
enterprise which is facing a threat of substantial layoffs or a
plant closing and adequate private financing is not available.
For purposes of this subsection, the term "existing enterprise"
shall include an ongoing concern, the assets of an existing
company or the assets of a company which has been closed for no
more than one year as of the date of completion of a feasibility
study.
(c) Use of assistance.--Eligible project costs shall include
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land and buildings, machinery and equipment and working capital
secured by accounts receivable and inventory.
(d) Debt instruments.--The financial subsidy provided should
be the minimum necessary to accommodate the borrower's financial
needs. Debt instruments shall include either or both of the
following:
(1) Loans, including deferred interest and principal
payments.
(2) Loan guarantees.
(e) Security.--Loans shall be secured by lien positions on
collateral at the highest level of priority which can
accommodate the borrower's ability to raise sufficient debt and
equity capital. When the obligation of a firm is guaranteed, the
financial institution holding the obligation shall adequately
secure the obligation. The office shall require collateral
against loans or loan guarantees awarded under this act. The
office may determine collateral per application.
(f) Loan limits.--The maximum loan or guarantee is
$1,500,000 per firm. The amount of a loan shall not exceed 25%
of the total project costs and guarantees shall not exceed 25%
of the total loan value. The term of the loan shall be the
shortest, consistent with the needs of the firm, but no longer
than 20 years.
(g) Equity requirement.--A significant equity investment by
the employee-ownership group equal to at least 10% of the
project cost and including substantial participation by at least
two-thirds of the members of the employee-ownership group is
required to qualify for the loan or guarantee.
(h) Feasibility study.--The office may not approve
assistance without a feasibility study demonstrating a
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substantial prospect for job retention or future job growth and
a business plan, including steps to facilitate labor-management
cooperation. General adherence to the feasibility study is
required for an eligible employee-ownership group to receive a
loan or loan guarantee under this section.
Section 7. Criteria for evaluating applications.
The local administrative agencies and the office shall
evaluate an application under section 6 based on the following
criteria:
(1) Number of jobs retained or created in relation to
the size of the loan. The loan shall not exceed a cost of
$15,000 per job created or retained.
(2) Ability of the applicant to repay the loan and the
likelihood of retaining or creating jobs.
(3) Evidence of other private financial commitments.
(4) Evidence that, without the financial assistance,
other Federal, State or local public and private investment
would be insufficient to finance the employee-owned
enterprise.
(5) The extent to which a firm employs a significant
number of employees or represents a significant portion of
employment in the community.
(6) Additional criteria specified by guidelines or
regulations of the department.
Section 8. Main Street Employee Ownership Grant Program.
(a) Establishment.--The Main Street Employee Ownership Grant
Program is established within the office to provide grants to
businesses that are eligible under subsection (b).
(b) Eligibility.--A business is eligible for grants under
this section if the business:
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(1) Has fewer than 100 employees.
(2) Is a retail establishment.
(c) Use of grant.--Grant money awarded may be used by an
eligible business to:
(1) Acquire a business to be an employee-owned
enterprise.
(2) Convert a business to an employee-owned enterprise.
(3) Provide support for technical assistance, such as
the proper management of an employee-owned enterprise, best
business practices or other assistance approved by the
office.
(d) Limitation and approval.--Grant awards may not exceed
$35,000. If a business is approved for a grant under this
section, the business shall have an automatic approval for
financial assistance under section 6.
Section 9. Administration.
(a) Responsibility of local administrative agencies.--Local
administrative agencies shall promote the employee ownership
program and the Main Street Employee Ownership Grant Program by
soliciting applications, evaluating applications and making
preliminary decisions on both technical assistance and financial
assistance. Not more than 2% of the money appropriated for the
purpose of this act may be used by local administrative agencies
for the purpose of administering these programs.
(b) Approval by employee ownership advocate.--The employee
ownership advocate shall have full responsibility for final
approval of all applications for assistance.
(c) Advances.--The office may make money advances to local
administrative agencies for the purpose of making loans, loan
guarantees or grants consistent with this act. Advances under
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this section must be repaid to the office when the loan or loan
guarantee is repaid by the borrower.
(d) Loan and loan guarantee fees.--Local administrative
agencies may establish and charge reasonable fees for processing
loans or loan guarantees under section 6, with the approval of
the secretary.
(e) Rules and regulations.--The secretary may promulgate
rules and regulations, statements of policy or forms, guidelines
and other procedures, forms and requirements necessary for the
implementation of this act.
Section 10. Indicators of program impact.
(a) Report.--On March 1 of each year of the employee
ownership program's and the Main Street Employee Ownership Grant
Program's existence, the employee ownership advocate shall
submit a report to the Secretary of the Senate and the Chief
Clerk of the House of Representatives on the impact of the
programs, including:
(1) Rules, guidelines or statements of policy used in
administering the programs.
(2) The number of employee-ownership groups and firms
receiving assistance.
(3) The number of feasibility studies which were
actually implemented.
(4) The number of jobs retained or created and the
number of jobs created or retained as a result of financial
assistance.
(5) Other information deemed necessary by the employee
ownership advocate.
(b) Information to office.--Recipients of assistance under
these programs shall provide the office with the information
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needed to fulfill the reporting requirement under subsection
(a).
Section 11. Nondiscrimination.
No loan, loan guarantee, grant or other financial assistance
shall be made to a recipient under this act unless the recipient
certifies to the department, in a form satisfactory to the
department, that it shall not discriminate against an employee
or against an applicant for employment because of race,
religion, color, national origin, sex or age.
Section 12. Guidelines and regulations.
(a) One-year exemption from review.--In order to facilitate
implementation of this act, the department may promulgate, adopt
and use temporary guidelines that shall be transmitted as a
notice to the Legislative Reference Bureau for publication in
the Pennsylvania Bulletin. The guidelines shall not be subject
to review under:
(1) Sections 201, 202, 203, 204 and 205 of the act of
July 31, 1968 (P.L.769, No.240), referred to as the
Commonwealth Documents Law.
(2) Section 204(b) of the act of October 15, 1980 (P.L.
950, No.164), known as the Commonwealth Attorneys Act.
(3) The act of June 25, 1982 (P.L.633, No.181), known as
the Regulatory Review Act.
(b) Expiration of exemption.--After the expiration of the
one-year period, all guidelines shall expire and shall be
replaced by regulations that shall have been promulgated,
adopted and published as provided by law.
Section 13. Annual appropriation and funding sources.
(a) Estimate of expenditures.--Before November 1 of each
year, the employee ownership advocate shall estimate the total
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expenditures for the office and submit the estimate to the
Governor in accordance with section 610 of the act of April 9,
1929 (P.L.177, No.175), known as The Administrative Code of
1929. At the same time the office submits the estimate to the
Governor, the office shall also submit the estimate to the
General Assembly. The following shall apply:
(1) The employee ownership advocate shall be afforded an
opportunity to appear before the Governor, the Appropriations
Committee of the Senate and the Appropriations Committee of
the House of Representatives regarding the estimate.
(2) For each fiscal year, the office shall calculate the
office's proposed appropriation by subtracting the unspent
portion of the office's budget for the previous fiscal year
from the total appropriation that was approved by the General
Assembly. The remainder shall be allocated to the department
for the next fiscal year.
(b) Allocation of assessment.--For each fiscal year, the
office shall determine for the preceding calendar year the
amount of its expenditures directly attributable to
administering this act as follows:
(1) Expenditures of the office directly attributable to
section 5 of this act.
(2) Expenditures of the office directly attributable to
section 6 of this act.
(3) Expenditures of the office directly attributable to
section 8 of this act.
(4) Expenditures of the office directly attributable to
section 9 of this act.
(5) Total expenditures of the office directly
attributable to administering this act.
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(c) Funding sources.--Any of the following may be used as
funding sources for the office for the purposes of this act:
(1) Money appropriated for the purposes of this act.
(2) Federal money appropriated or authorized for the
purposes of this act.
(3) Money received from a State agency through an
interagency agreement or memorandum of understanding.
(4) A gift or other contribution from a public or
private source.
(5) Returns on money dedicated for the purposes of this
act, including, but not limited to, interest on loans or loan
guarantees.
(6) Any appropriation that was unspent by the end of a
previous fiscal year.
Section 14. Effective date.
This act shall take effect in 60 days.
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