BY OSCAR PERRY ABELLO | SEPTEMBER 11, 2018 on NextCity

Roughly 10,000 baby boomers turn 65 every day in the United States. They don’t all own small businesses, but their aging presents an opportunity for more workers to get the chance to own businesses and even build some wealth.

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Baby Boomers own the majority of small businesses, but only 17 percent of them have a formal exit plan for when they want to retire. Shutting down is the first option, even in cases where the business might be doing well. The consequences can include the disappearance of the lifeblood of any neighborhood or the soul of any street and a significant loss of jobs. Such changes would most negatively affect those who earn and own the least. While each business may employ a small number of people, small businesses provide the vast majority of employment within low-income urban areas.

Selling to investors, or to a competitor, provides another common option for retiring business owners, especially if they’re successful. That may preserve some jobs, but a sale to a larger competitor or someone outside the community comes with the threat of downsizing or maybe a total overhaul of the business. Firing longtime workers and hiring all new employees may mean losing the connection between that commercial space and neighborhood residents.

A report published today, “Co-Op Conversions at Scale,” takes a deep dive into another option: retiring small-business owners selling to their employees.

Using data from the National Establishment Time Series (NETS) database — the same database that many banks use to predict lending risk for businesses — the report’s authors make a case that significant potential exists to finance the conversion of businesses with 20 to 100 employees into worker cooperatives.

In a worker cooperative, in addition to sharing ownership, workers share collective responsibility in managing the business, often using the principle of “one worker, one vote” to govern decisions like hiring management or delegating management responsibilities to each other. According to the Democracy at Work Institute, which supports worker cooperatives across the United States, the typical worker cooperative employs 9-10 worker-owners earning an average hourly wage of $15.82, each working an average of 30.35 hours a week, bringing in an average of $3.9 million in annual revenues at an average profit margin of three percent. Under a worker co-op, profits are typically also shared equally among worker-owners.

The benefits of small businesses becoming employee-owned may go beyond preserving jobs or maintaining the connection between a community and its local businesses — it may also represent a significant transfer of wealth from mostly white-owned businesses to workers of color. For all these reasons, NYC, Cleveland, Rochester, Austin and other cities across the country are finding ways to encourage worker-ownership.

Congress has explored supporting worker cooperatives too, and has several initiatives on the table. A law enacted in August could help the Small Business Administration expand support and lending for employee ownership conversions.

“Co-Op Conversions at Scale,” from Citi Community Development and Capital Impact Partners, a nonprofit that provides capital for community development, started out as an internal discussion at Capital Impact Partners about whether there was any potential market demand in the worker co-op conversion space for the organization. (Next City receives funding from Citi Community Development for The Bottom Line series.)

Since its founding in 1982, Capital Impact Partners has provided $20 million in financing for establishing and expanding worker cooperatives, but none of that has been for the purpose of converting existing businesses.

“We knew instinctively that there had to be [demand for worker co-op conversions], and we knew there was data on baby boomers retiring but there really hadn’t been a lot of data out there with this segmentation,” says Alison Powers, program officer for strategy, innovation and impact at Capital Impact Partners, about the level of detail the new report considers.

To be convinced that it should move more intentionally into worker co-op conversions, Capital Impact Partners wanted information about retiring owners with businesses at least 25 years old, and independent businesses whose owners would be in a position to sell to employees.

The community development lender wanted to assess five key sectors that are essential to its mission of supporting communities through living-wage jobs with benefits as well as high-quality services: grocery stores, food manufacturing, home-care agencies, residential care facilities and child-care centers.

Powers says they wanted to keep the focus on small businesses with 20 to 100 employees because Capital Impact Partners is a larger lender with a portfolio of nearly $1 billion in loans. The nonprofit is part of an informal group that includes smaller community development lenders that support worker cooperatives, including Cooperative Fund of New England, Local Enterprise Assistance Fund, Shared Capital Cooperative and The Working World.

A new report reveals the potential of converting small businesses to worker cooperatives when the owner is retiring. These graphics show the number of businesses considered, number of employees and more, for (from top to bottom): the Chicago metro, Los Angeles and the Bay Area, and the New York City metro. (Credit: “Co-Op Conversions at Scale,” Citi Community Development and Capital Impact Partners)

The lender also didn’t want to focus on businesses larger than 100 employees. At that size, the more popular employee-stock-ownership plans (ESOPs) are more feasible, given the expensive legal and administrative burdens required to pursue that option. There are currently more than 6,000 companies around the U.S. with ESOPs in place, covering some 2.1 million employees — at an average of around 343 employees per company. The sweet spot, 20 to 100 employees, was where Capital Impact Partners felt it could meet a need that neither the smaller lenders nor ESOPs were meeting.

The report examines five regions where there’s already local or national support helping with the non-financial side of worker co-op conversions. That includes education and outreach to owners as well as significant training and technical assistance for workers to assume ownership and management responsibilities. The areas are: New England, the NYC metropolitan area, the mid-Atlantic (consisting of Philadelphia, Baltimore and Washington, D.C.), the Chicago metropolitan area, and California (consisting of the Bay Area and Los Angeles metropolitan area). Data for Miami was also included in the report, which notes that there isn’t yet a strong technical assistance ecosystem for worker cooperatives in that region.

“Funding for technical assistance is something that we really look for as a lender,” says Powers. “We know that technical assistance is absolutely critical, both during the conversion process but also ongoing, especially in the three to five years after conversion. As a lender, we really know that mitigates risk — knowing there are trusted [technical assistance] partners, sources of funding for those partners, whether that’s through the municipality or state or foundations.”

Of the companies that met the report’s criteria (size, location, etc.), from 1991 to 2014, 159 were sold or shut down per year, affecting 5,724 employees. A majority, 85 of those companies each year, shut down, despite most being profitable businesses.

“For me, the biggest aha moment was that more long-standing healthy businesses close than are sold,” says Powers. “That hit me over the head as an immediate crisis.”

As Powers also points out, the report shows there is a significant market for worker co-op conversions even within its limited geographic and industry scope. There’s still unstudied market potential out there in other regions and other industries.

ICA Group, a Boston-based nonprofit consultancy that assists worker-owned companies, was the primary author of “Co-Op Conversions at Scale.” One of the key services ICA Group offers in its own work is determining the market value of businesses that are interested in worker co-op conversions or other worker-ownership structures. ICA Group estimated that the median value of the businesses studied was around $777,000. Median values ranged wildly between sectors and regions, from $240,000 for a child-care business in the Miami area to $3.73 million for a California food-manufacturing business

Knowing the range of values for these businesses is essential. Workers generally won’t have all the cash they need to pay owners what their businesses are worth, Powers explains. That’s where community development lenders like Capital Impact Partners can step in and provide a loan on favorable terms. At a median value of $777,000, a projected 30 worker co-op conversions per year of businesses in the 20 to 100 employee range would require $23 million in capital, according to the report.

But even with a favorable loan from Capital Impact Partners, a bank or credit union, or some combination of all the above, workers will still have to come up with at least a small down payment, which may pose another barrier. The recent changes at the Small Business Administration may help reduce the down payment needed, but they won’t eliminate the barrier.

“It can be especially tricky when you have an industry where not all workers have a lot of income,” says Powers. “We’re not exactly sure what [a solution] could look like, but we know it’s a problem.”

This article is part of The Bottom Line, a series exploring scalable solutions for problems related to affordability, inclusive economic growth and access to capital. Click here to subscribe to our monthly Bottom Line newsletter. The Bottom Line is made possible with support from Citi Community Development.

Oscar is editor of Next City. Before that, he was a contributing writer and Equitable Cities Fellow for Next City. Since 2011, Oscar has covered community development finance, community banking, impact investing, equitable and inclusive economies, affordable housing, fair housing and more for media outlets such as Shelterforce, B Magazine, Impact Alpha, and Fast Company.

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Denver Area Investors Want to Get Moving on Community Land Trust:  Community land trust with the goal of acquiring 700 homes throughout the Denver area may be ready to move on to another Colorado city, Westword reports.

In December, Elevation Community Land Trust approached the city in search of both single-family houses and condos. By then, the trust had already raised $24 million in private capital and was hopeful of acquiring another $23 million in contributions from local governments — Denver’s new $150 million dedicated housing fund looked like one promising source — as well as $11 million from private partners and donations.

But according to Westworld, discussions between the trust and the city have lagged in recent months, and Elevation’s backers aren’t sure where they fall in the city’s housing priorities anymore. The trust is now discussing its proposal with other municipalities, including Westminster, Aurora and Adams County, all of which are potentially willing to provide land and the additional dollars.

“I’m disappointed that it’s moving so slowly [with Denver],” Dave Younggren, CEO of Elevation partner Gary Community Investments told the news site. ”After we did the [December 7] presentation, we were anxious to move forward and thinking that it’d be a fairly accelerated process, but then the city had the realignment, with housing moved under the Office of Economic Development — that really slowed things down. Now we’re not quite sure where the process is.”

As Next City has covered, Denver is one of the fastest growing metros in the U.S. and officials estimated last year that the city needs at least 21,000 more affordable units to meet current demand. In 2016, the city passed its landmark plan of raising $150 million over 10 years for affordable housing (although some officials claim that figure isn’t nearly enough to meet regional demand). Other strategies pursued by city have included a rent “buy-down” program, in which the city would purchase empty high-end apartments and subsidize their rents for lower-income families, the creation of a new Office of Housing & Opportunities for People Everywhere, or HOPE for short, and a comprehensive planprioritizing tenants’ rights and landlord regulations.

A community land trust, or CLT, would have fit into those plans by acquiring land through either a purchase or public transfer, and then leasing homes built on it to families or developers. Because the family or developer would need to purchase only the building (rather than the building plus the land), that home would likely be more affordable than its conventional counterpart.

nvestors Raised Funds and Pitched Denver on a Land Trust. Now They May Go Elsewhere.

 

An Unusual Coalition in Boston Helps Save Homes from Foreclosure BY ZOE SULLIVAN | SEPTEMBER 11, 2018 NEXT CITY

One day in early Summer 2012, a man yelled up to Alma Chislom from the front porch of her triple-decker apartment building, the style so common in the Boston area.

“The man on the porch asked if he bought the house, if we would want to stay,” says Chislom. She had moved just a few months earlier to the Park Street apartment after dealing with a landlord who didn’t pay the water or heating bills. “So here I am again thinking we’re going to be homeless,” she says.

Chislom wasn’t alone in this situation. As the subprime mortgage crisis and subsequent recession dragged on, particularly in poorer neighborhoods, buildings languished in various phases of foreclosure, leaving homeowners as well as tenants in limbo — easy picking for investors looking to flip entire blocks or neighborhoods into luxury housing. Tenant organizers in Boston began to see the foreclosure crisis as a new front.

Lisa Owens was one of the people at City Life/Vida Urbana who eventually helped Chislom stay in her home.

“We had a pretty major campaign that started with the big banks but ultimately ended with a demand directly to FHFA [the Federal Housing Finance Association], and Fannie Mae and Freddie Mac, which ultimately were the largest mortgage holders, to say ‘stop displacing people and do principal reduction for all of these homes that were under water,’” Owens says.

The situation brought together an unusual group of allies. The Coalition for Occupied Homes in Foreclosure, or COHIF as it’s known, includes members such as City Life/Vida Urbana, Boston Community Capital, Harvard Legal Aid Bureau, Greater Boston Legal Services, the Greater Four Corners Action Coalition, the Archdiocese of Boston’s affordable housing development arm, the Massachusetts Association of Community Development Corporations, and others.

“It is probably the only place that I know of where radical housing advocates and more mainstream policy advocacy folks in the housing world, non-profit developers, for-profit developers, financiers, and city agencies all come together to deal with this [foreclosure] crisis and what has turned into now a displacement crisis for renters and owners,” says Owens.

The key, she says, is that even if members of the group might have opposing positions on other issues, everyone saw the benefits of stabilizing communities against foreclosure.

“Bank tenants” is the term Owens says the coalition developed to refer to the homeowners who were fighting to stay in their homes. In some cases, elderly people with significant medical costs couldn’t afford mortgage payments even after winning reductions in the principal owed. In other cases, there were not enough work hours available for younger people to cover mortgages for elderly or sick relatives.

“We were fighting for homeowners to stay in their homes, but what we found was that there was a subset of folks who … could not afford to buy back their homes, even at the reduced prices,” Owens explains. “We had to find another entity to buy those homes.”

Finding no other willing partners, the coalition morphed from an advocacy organization into an affordable housing developer.

“The [original] idea was to get a [community development corporation] to purchase the properties,” Owens said. “That didn’t happen. COHIF ended up creating new financial pathways to acquire and renovate these properties [itself].”

One of the coalition members, Boston Impact Initiative (BII), largely grew out of the coalition’s work.

“We do what we call ‘integrated capital,’” says Boston Impact Initiative co-founder Deborah Frieze, “Meaning we put equity, debt and grants out into the world.”

Boston Impact Initiative limits its grantmaking to just three, Boston-area organizations, one of which is City Life/Vida Urbana. In keeping with its model, the group also invests in COHIF so the coalition can purchase the properties it wishes to save from foreclosure. It closed on a second round of investment in COHIF this summer.

The coalition’s transition from tenants’ rights organizing to becoming a landlord presented challenges. Maureen Flynn worked as COHIF’s Executive Director from 2012 until she began working with the City of Boston’s Department of Neighborhood Development.

“It’s a tough transition, and we spent a lot of time working on individual cases that were very difficult and presented tensions within the organization,” Flynn says. Dealing with these situations, she says, helped reinforce the group dynamic.

“We were so firmly on the ground with our members, everyone was able to be reasonable and understand the different points of view,” she says.

This capacity to engage in real discussions has helped the group evolve and cultivate the trust that has been essential to its survival and success so far.

“Folks took a gamble on us,” Owens says. She points to the way Boston’s only existing land trust, birthed by the Dudley Street Neighborhood Initiative, stepped up and acted as COHIF’s guarantor, allowing the group to purchase its initial four properties.

Over this past summer, COHIF was working on its second transition — from affordable housing developer to community land trust. Owens sees this as an essential move towards creating and maintaining affordable housing in the Boston area over the long-term.

For Chisolm, instead of imaging herself homeless, now the potential of a community land trust offers the prospect of a legacy she can pass on to her children and grandchildren.

“We’re already like a community,” Chislom says. “We can help each other. We can build each other up. We can reach out to other people.”

Participating in managing the land trust means an opportunity to make decisions about how to run that community.

“[I say] this is for you,” says Chislom, referring to her children. “You guys can grow it and stay here and run the house.”

This article is part of The Bottom Line, a series exploring scalable solutions for problems related to affordability, inclusive economic growth and access to capital. Click here to subscribe to our monthly Bottom Line newsletter. The Bottom Line is made possible with support from Citi Community Development.

Zoe Sullivan is a multimedia journalist and visual artist with experience on the U.S. Gulf Coast, Argentina, Brazil, and Kenya. Her radio work has appeared on outlets such as BBC, Marketplace, Radio France International, Free Speech Radio News and DW. Her writing has appeared on outlets such as The Guardian, Al Jazeera America and The Crisis.

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California Organizers Don’t Want This Kind of Bail Reform BY ALEJANDRA MOLINA | SEPTEMBER 10, 2018

One social justice advocate calls a bail reform bill passed in August by legislators in the Sacramento Capitol, above, a “tragedy.”

In late August, Raj Jayadev and Jose Valle led a group of Bay Area residents to the California Capitol in a last-ditch effort to prevent Gov. Jerry Brown from signing a bail reform bill that is a revised version of a measure that Jayadev, Valle and many activists once supported.

The measure, known as SB 10, would “mass incarcerate our people,” Valle told a state representative after handing him a letter signed by community organizations that share Valle’s concern.

Jayadev advocated for “real bail reform,” urged the governor not to taint his legacy by signing the bill, and with the others chanted, “Veto SB 10, Veto SB 10!”

This encounter took place Aug. 23, just days after the bill, which eliminates money bail in California, passed the Assembly. It will replace a cash bail system with “risk assessment” tools. Counties will have to use computer algorithms to determine how likely it is that a person facing trial will flee before a court date or commit a crime if not held in jail.

On Aug. 28, the governor signed SB 10.

In a statement, Brown said the new law guarantees “that rich and poor alike are treated fairly” when accused of crimes.

Research shows that in California, most people held in county jails have not been sentenced and are serving time because they’re unable to pay for pretrial release. That’s why many criminal justice advocates spent two years rallying for a different version of SB 10 and helped state Sen. Bob Hertzberg, a Democrat, craft a measure.

Valle, Jayadev and other criminal justice reform organizers fear the version that’s been passed gives too much power to judges.

“It’s definitely a fake bill,” Valle says. “It’s a tragedy that it passed.”

Starting in October 2019 in California, people accused of committing low-level misdemeanors will be released within 12 hours of being booked. They won’t undergo a risk-assessment exam.

People accused of felonies and who are deemed “low risk” by the assessment test will be released. The release of those considered medium risk will depend on the courts. Offenders deemed “high risk” will see a judge at arraignment. “High-risk” defendants may await trial in jail if they’ve been convicted of a serious or violent felony in the last five years.

As big data-driven decision-making has become more popular, many critics have pointed out that computers have failed to remove racial bias — often to the detriment of marginalized communities. A ProPublica study in 2016 found that software designed for pretrial risk assessment was often inaccurate and biased against black people.

Human Rights Watch, which also opposes SB 10, says risk-assessment tools “tend to reinforce the system’s ingrained biases and lack transparency.”

“The data they use, especially arrest and conviction history is greatly skewed by racial and class bias in policing and court outcomes and social inequities,” the organization noted in an Aug. 23 statement.

American Civil Liberties Union of California officials — who supported earlier versions of the measure — in a joint statement that same day said they “welcome an end to the predatory lending practices of the for-profit bail industry,” but said the measure does not “provide sufficient due process nor adequately protect against racial biases and disparities that permeate our justice system.”

Oakland-based Essie Justice Group, a nonprofit helping women with incarcerated loved ones, has long advocated for cash bail reform but opposes what passed in Sacramento. The group released a statement that included: “In a sad twist after years of work, this bill as amended in the final days subjects nearly everyone arrested to a new system of expanded pretrial incarceration and preventative detention. People who could get out and go home today pretrial, albeit at great cost to a bail bondsman, would have to stay incarcerated the moment this bill goes into effect.”

Some Democratic lawmakers, however, see this bill as a crucial first step.

Assembly Member Reggie Jones-Sawyer, as quoted in KQED, said the Legislature will have to revisit the issue next year.

“We are going to have to come at it again and again … until we get the system that we want … until we build a system that is equitable and provides justice for all,” he told KQED.

Assembly Member Shirley Weber called the bill a giant step forward, according to KQED.

“It requires courage sometimes to step forward and not just make that change, but work to make that change right,” she said.

For Valle and Jayadev, who are part of Silicon Valley Debug, a San Jose-based organization that helps families with incarcerated loved ones, the bill’s passage is bad news for the people they serve.

Their organization often helps families who go to them when their loved ones are arrested.

Valle says he helps families navigate the court system by encouraging them to do more than just depend on their attorneys. He helps them understand the court process and penal codes. He guides them through testimonies and evidence. He helps them create biography packets for incarcerated people because it “humanizes them,” he says.

“Money bail is an issue, but we can’t replace the bail industry with the prison industry,” he says. “[Bail companies] are only businesses that were able to capitalize off of the enemy, and I think the enemy is injustice in our courts, in our policy and laws, and in bail.”

Alejandra Molina is a Next City Equitable Cities Fellow for 2018-2019. Previously, she was a reporter for the Southern California News Group where she covered cities, immigration, race, and religion. In her decade-long career, she’s reported how gentrification has affected downtown Santa Ana in Orange County, followed up how violent shootings have affected families and neighborhoods, and reported how President Donald Trump has impacted undocumented communities in the Inland Empire. Her work has appeared in The Press-Enterprise in Riverside, The Orange County Register, The Los Angeles Daily News, and The Mercury News in San Jose. She graduated with a bachelor’s degree in broadcast journalism from the University of La Verne, where she taught an introductory journalism course as an adjunct professor.