Presentation prepared for: Federal Reserve Bank of St. Louis—Exploring Innovation 2009 St. Louis, Missouri: April 23, 20

1. Anchor Institutions, Employee Ownership & Economic Development: a Community Wealth Building ApproachJohn Logue, Director, Ohio Employee Ownership CenterSteve Dubb, Senior Research Associate, Democracy Collaborative Ohio Employee Ownership CenterThe Democracy Collaborative 113 McGilvrey Hall 1140-F Tydings Building Kent State University University of Maryland Kent, Ohio 44240 College Park, MD 20742 http://www.kent.edu/oeoc http://www.community-wealth.org telephone: 330-672-3028 telephone 301-405-9834 fax: 330-672-4063 fax 301-270-4000 email: jlogue@kent.edu email: sgdubb@yahoo.com Presentation prepared for: Federal Reserve Bank of St. Louis—Exploring Innovation 2009 St. Louis, Missouri: April 23, 2009 Ohio Employee Ownership Center

2. PROPERTY AT RISK

3. Our Approach • Create new community-based businesses using employee ownership and related means to build community wealth • Focus anchor institution purchasing locally into neighborhoods • Build on national momentum to green our cities and catalyze “green collar” jobs • Ensure financing

4. Goals Create new jobs for neighborhood residents Anchor productive capital within poor neighborhoods Promote asset accumulation for low- and moderate-income residents Build viable, locally-owned economic enterprises that can help stabilize the neighborhoods

5. Employee ownership and community economics

6. Employee Ownership & the community * Anchors capital in the community * Secures jobs with better wages and benefits * Increases the rate of reinvestment * Stabilizes/grows the tax base * Increases home ownership * Builds wealth for working families * Increases employee influence on the job Employee discussion at PT Tech

7. Forms of employee ownership 1. Employee Stock Ownership Plans (ESOPs) • Tax advantaged retirement plans for employees • Invest primarily or exclusively in the stock of the employing company • Can borrow money May own anywhere from a tiny minority share to 100% of the company ESOPs are highly regulated “qualified employee pension plans” 2. Broadly distributed stock options • Public companies: contingent compensation for employees rather than long term ownership • Closely held companies: Must be coupled with internal market

8. Forms of employee ownership (continued) 3. Employer stock in 401(k) plans • Many companies match employee 401(k) contributions in company stock • Some public companies provide purchase of company stock as a 401(k) investment option 4. Direct employee stock ownership (stock purchase plans) • No tax advantages • Sense of direct ownership 5. Cooperatives • Fewer tax advantages • Fairly flexible – especially under Ohio law • Most advantageous in smaller companies • “Born democratic” – members control the co-op

9. The employee-owned sector in the US today Source: National Center for Employee Ownership, 2009

10. Growth of Ohio Employee Owned Sector Source: IRS Form 5500 filings, Larkspur Data Resources, DataMaster 2006

11. Impact on job creation How Ohio ESOPs Compared with Their Industries in Job Creation and Retention during the 1990-92 Downturn Source: Logue & Yates, 2001

12. Job impact II: How Ohio ESOPs Compared with Their Industries in Job Creation and Retention during the 2000-2002 Downturn Source: Ohio Employee Ownership Survey 2003-05, n=118

13. Non-managerial wages and benefits in Ohio ESOP companies compared to industry Source: Ohio Employee Ownership Survey 2003-05, n=118

14. Rate of capital investment in Ohio ESOP companies compared to industry Source: Ohio Employee Ownership Survey 2003-05, n=118

15. Change in profitability in Ohio ESOP companies compared to industry Source: Ohio Employee Ownership Survey 2003-05, n=118

16. Impact on creation of wealth Ohio wealth creation through ESOPs Source: IRS Form 5500 filings, Larkspur Data Resources, DataMaster 2006

17. Impact of OEOC: Jobs • Worked with 580 companies employing 121,000 to explore employee ownership • Assisted employees in buying part or all of 86 companies, creating 14,600 new employee owners • If every cent in our budget over our 21-year history were allocated to job retention, the cost per job retained or stabilized would be $640/job (period: 7/1/1987-6/30/2008)

18. Impact of OEOC: Asset Creation • As of 2005, 64 of these 86 companies have created $421 million in total equity and $344 million in net equity for 11,640 employee owners • Employee net equity grows by $10 million annually despite retirees taking out about $6-8 million annually • If the OEOC disappeared tomorrow, this growth would continue simply on in-place employee-ownership base • If every cent in our budget over our 21-year history were allocated to asset creation, the OEOC leverage ratio would be 45:1 (total employee equity:budget) and 37:1 (net employee equity:budget) (period: 7/1/1987-6/30/2008)

19. Working with Anchor Institutions

20. What is an Anchor Institution and Why Should We Care? • “Sticky capital” that doesn’t get up and leave • Typically among the largest employers in most major metropolitan areas • Local economic engine: employs large numbers of people purchase large amounts of goods & services • Vested interest in surrounding communities • Typically non-profit: has public mission • Largely untapped potential

21. Cleveland, OH: more reasons to care • University Hospital (UH) spends $800M per year on goods and services. (Does not include construction) • Cleveland Clinic estimated to spend twice this amount. • UH currently spends $240M per year in Northeast Ohio on goods and services. • UH has shifted $100M to Northeast Ohio based vendors in 2008, goal is to shift an additional $400M by end of 2010. • UH goals include spending $580M of Vision 2010 Construction Project based dollars in Northeast Ohio over next 2 years.

22. Leveraging Hospitals for Community Benefit Sources of Leverage Available Means Potential Benefits $600 billion a year in purchasing power, 3% of all employees • Use of endowments • Employment policies • Local purchasing • Real estate investments • Technical assistance • Business incubation • Non-profit support work • Revitalized neighborhoods • Increased local hiring, livable wages • Affordable housing • New retail development • Small business expansion • Increased nonprofit capacity Real estate, endowment assets Physician research & technical expertise

23. Higher Education Anchors • 4,000+ colleges & universities • $373 billion a year of economic activity • $411 billion in endowment investments • 3.4 million employees • 18 million students In 1996, the latest year for which data is available, the more than 1,900 urban-core universities spent $136 billion on salaries, goods, and services—nine times greater than federal direct spending on urban business and job development in the same year. (Michael Porter, Harvard Business School, 2002)

24. Leveraging University Resources Sources of Leverage Available Means Potential Benefits Nationally: $373 billion a year in purchasing; 2% of nation’s employees Cleveland area: $2.4 billion annual revenues; $3.4 billion total endowments •Endowment Investments • Employment policies • Local purchasing • Real estate investments • Technical assistance • Business incubation • Revitalized neighborhoods • Increased local hiring, livable wages • Affordable housing • Financial education/literacy • Small business expansion • Increased nonprofit capacity Example: Penn in West Philadelphia in 1996 more than tripled local purchasing from $20.1M to $70M by 2005, helping reduce local area crime rates by 40% and spurring $370M in private investment. Real estate holdings Education, research & technical expertise

25. Green Collar Jobs Potential types of “green business” • Co-ops that buy and/or produce renewable energy • Alternative energy-focused worker co-ops (e.g. biodiesel) • Employee-owned green businesses to provide goods and services • Green job corps apprenticeship programs • Nonprofit social enterprise “deconstruction” businesses that salvage materials from existing businesses • “Urban agriculture” programs that sell locally grown organic produce • Energy-efficient green affordable housing, which saves energy while also reducing residents' utility payments • Shifting existing manufacturing businesses geared toward hybrid vehicles and other alternative technologies.

26. Green Businesses Suggested by Anchor Institution Interviews • Shuttle service to reduce driving • Environmentally friendly industrial-scale laundry service • Environmentally friendly energy & facility upgrade business • Green friendly practices in food service (recycled cutlery,etc.) • Business that will separate out non-hazardous medical wastes away for recycling • Solar panel installation on rooftops • Recycling service that meets privacy standards so that confidential paper can be recycled • Deconstruction (reuse of materials for building construction) • Locally grown organic produce that could be made available for sale in hospital & university cafeterias & restaurants • Ecologically friendly landscaping business • Tree farm • Housekeeping service with non-toxic cleaning products

27. INITIAL OPPORTUNITIES • Launching in 2009 • Evergreen Cooperative Laundry • Ohio Cooperative Solar • Planning & Development • Commercial Food Production Greenhouse • Housing Deconstruction and Reuse Businesses • GUC Newspaper

28. Evergreen Criteria Business plan that projects profitability Hires majority of employees from GUC neighborhoods Located in or nearby GUC neighborhoods Matched to procurement needs of anchors Pays a “living wage” Green Builds toward 100% employee ownership Contributes % of profits to Cooperative Development Fund

29. Demonstrate feasibility of developing start-up cooperative linked to needs of GUC anchors Location: Shorebank Enterprise Cleveland Being organized by the Ohio Employee Ownership Center at Kent State University Hire staff from the neighborhoods; pay above industry-standard wage; significant investment in training; equity ownership in company and build-up of employee asset accounts Cleveland Foundation granted $750,000 for the launch of the laundry and to seed the Evergreen Cooperative Development Fund Greenest commercial scale laundry in NE Ohio Launch May 2009 Evergreen Cooperative Laundry

30. Financing for Evergreen Cooperative Laundry Senior debt: • First Merit (local commercial bank) 750,000 • Shorebank 750,000 • City of Cleveland 1,500,000 “Equity” (sub-debt through Evergreen Coop Development Fund) • New Market Tax Credits 1,500,000 • Cleveland Foundation 750,000 Working capital: • City of Cleveland 200,000 • Common Wealth Revolving Loan Fund 250,000 Total 5,700,000

31. Concept: Cooperative for-profit enterprise Based in neighborhoods around University Circle (inner-city Cleveland) Owned/operated by local residents (typically low-income) Business installs/owns PV projects Initially serving large institutional customers in nearby area Outcomes: Training and employment opportunities for low-income citizens Wealth creation for local residents Solar projects qualifying for Ohio AEPS Creation of installation capabilities to meet Ohio solar requirements Ohio Cooperative Solar (OCS)

32. Year-round hydroponic vegetable greenhouse located in GUC 5-10 acre facility Provide produce to large anchors and other institutions; > 800,000 heads of lettuce a year per acre Energy efficient and renewable energy sources Employ neighborhood residents Become a major player in regional food distribution network Evergreen Cooperative Growers COMMERCIALFOOD PRODUCTION GREENHOUSE

33. EVERGREEN COOPERATIVE DEVELOPMENT FUND COOPERATIVE SOLAR COOPERATIVE AGRICULTURE EVERGREENFUND COOPERATIVE LAUNDRY FUTURE COOP FUTURE COOP FUTURE COOP

34. Evergreen Cooperative Development Fund Initial funding goal: $10 million Revolving subordinate loan fund at ShoreBank Seed capital for coop start-ups Multiple investors May incorporate an LLC to attract more traditional investment capital Technical assistance and support

35. Projected Impact of $10 Million Fund 10 new business start-ups 350 new jobs (direct) $30 million additional leveraged in loans, tax credits, etc. Asset accumulation of up to $65,000 per employee