RE: Request for $5 million to fund the recently-established Employee Ownership Hub within the Governor’s Office of Business and Economic Development.

Dear California Legislative Budget Leadership,

The undersigned organizations, businesses, and individuals write in support of a request for a one-time budget allocation of $5 million to fund the recently-established Employee Ownership Hub within the Governor’s Office of Business and Economic Development which was created in 2022 through the passage of SB 1407, the California Employee Ownership Act.

The Employee Ownership Hub will help establish the infrastructure necessary to increase employee ownership throughout California. As the Legislature prepares for a potential budget shortfall, it is vital that we remain steadfast in the commitment to bolster local economies and protect jobs. This $5 million investment will not only help develop more wealth building opportunities, but will create more resiliency in the economy. Research shows that worker-owned businesses are less likely to lay off workers, and more prepared to pivot business strategy, during downturns. Employee-owned firms were four times more likely to retain jobs at the height of the COVID-19 pandemic. This trend of business resiliency has held true over multiple past recessions. With wide-reaching worker ownership, more businesses would be able to weather the storm of economic stagnation. Investment in employee ownership can serve as a key element of California’s strategy for economic resilience, and a safety net for our state’s small businesses.

Employee-owned businesses, commonly formed as worker cooperatives (co-ops) or Employee Stock Ownership Plans (ESOPs), provide proven benefits including stronger business performance, and quality jobs and wealth building opportunities for employees. Expanding employee ownership benefits businesses, workers, and local economies.

There is no better time for California to embrace employee ownership to preserve small businesses. According to national surveys, 79% of business owners want to retire within 10 years, 60% in less than 5 years, and 33% in less than 3 years. Without intervention, many of these businesses will close. Only 15% of businesses successfully transition to the next generation in the family. Most business owners who attempt to sell are not able to, with only 20% of commercial listings actually selling. Rather than closing for good or selling to large, out-of-state buyers, small business owners can find willing buyers in the people who work alongside them every day & know their businesses best: their workers. Doing so will anchor essential production and services in communities, protect livelihoods, avert layoffs, and save the State money.

Investment in employee ownership can also serve as a component of California’s strategy to close the racial wealth gap. The average Black and Latino household in the United States holds only fifteen to twenty percent of the wealth of the average white household. Alarmingly, this racial wealth gap has been widening over the last decades rather than shrinking. California needs to take bold action to address the racial wealth gap, and investment in employee ownership can be part of the plan. Research shows that employee ownership narrows the racial wealth gap, with Black and Latino workers at employee-owned firms building on average tens of thousands of dollars more in wealth than the average U.S. worker.

Building on provisions in the 2022 Budget, and recent recommendations from state entities such as The Little Hoover Commission’s recent report, First Steps toward Recovery: Saving Small Businesses, we respectfully submit the following for consideration in the 2023-24 Budget:

Employee Ownership Hub – $5M to fund for three years the newly created Employee Ownership Hub within the Governor’s Office of Business and Economic Development. The Hub will provide support and align the work of various state agencies in support of broad-based employee ownership.

Despite its long-proven benefits, awareness of employee ownership remains low. Funding the Employee Ownership Hub is critical to sharing information on and reducing barriers to employee ownership, thus maximizing benefits for California workers, businesses, and local economies.

Workers becoming owners creates opportunities for wealth-building, community stability, as well as union partnership, and helps California create a more inclusive, equitable and stable economy fit for the 21st century. We appreciate your consideration of these evidence-based recommendations for this year's proposed budget. For questions regarding this proposal please contact Bernadette King Fitzsimons, Coordinator for Worker-Owned Recovery California at bkingfitzsimons@seiu-uhw.org.