SB 1407 (Becker) — Assembly Committee on Jobs, Economic Development, and the Economy (June 21, 2022)
Summary
This is an Assembly Committee on Jobs, Economic Development, and the Economy analysis of SB 1407 (Becker), as amended June 14, 2022, for a hearing on June 21, 2022 before Chair Sabrina Cervantes. The Senate vote is listed as 39-0. The bill, subject to appropriation, establishes the California Employee Ownership Program within the Office of Small Business Advocate, with an education and outreach grant program and a technical assistance grant program to subsidize conversions to employee ownership. Technical assistance grants may not exceed the lesser of 50% of qualified conversion costs or $50,000. The author is quoted as saying nearly 360,000 California businesses, employing 3.9 million workers, are at risk because their owners are nearing retirement. Registered support lists Ownership America, Project Equity and others, with no opposition on file.
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SB 1407
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Date of Hearing: June 21, 2022
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT, AND THE ECONOMY
Sabrina Cervantes, Chair
SB 1407 (Becker) – As Amended June 14, 2022
SENATE VOTE: 39-0
SUBJECT: California Employee Ownership Act
POLICY FRAME: For the past decade, there has been an escalation in the number of baby boomer
business owners seeking to sell their businesses and retire. Without an available buyer, these business
owners will be forced to liquidate the assets of the business and close shop. At the same time, long-time
workers may be out of jobs, years of building a career, and retirement through the business could be lost.
According to national surveys, 79% of business owners want to retire within 10 years, 60% in less than
five years, and 33% in less than three years. However, only 15% of businesses successfully transition to
the next generation in the family, and only 20% of commercial listings actually sell. Based on these
figures, the author believes that “nearly 360,000 California businesses, employing 3.9 million workers,
are at risk because their owners are nearing retirement.”
SB 1407 offers an alternative to closing shop or selling to large, out-of-state buyers by helping to develop
a robust employee-owned business culture in California. The bill includes helping business owners and
workers better under this option and supporting businesses as they transition to employee ownership. The
author contends that the bill can serve to anchor essential production and services in communities, protect
livelihoods, avert layoffs, and save the state money.
The analysis includes information on employee-owned businesses, the challenge of income inequality
during COVID-19, the Office of the Small Business Advocate, and the California small business
economy. There is no known opposition to this bill. Comment 6 includes suggested technical
amendments.
SUMMARY: SB 1407, subject to appropriation, establishes the California Employee Ownership
Program, within the Office of Small Business Advocate, for the purpose of working with internal and
external stakeholders. Specifically, this bill:
1) Makes legislative findings and declarations:
a) California’s small businesses continue to contend with the pressures of the aging baby boomer
business owners who are at or near retirement and desperately looking for an exit. According to
national surveys, 79% of business owners want to retire within 10 years, 60% in less than five
years, and 33% in less than three years. However, only 15% of businesses successfully transition
to the next generation in the family, and only 20% of commercial listings actually sell. Nearly
360,000 California businesses, employing 3.9 million workers, are at risk because their owners are
nearing retirement.
b) 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. Doing so will anchor
essential production and services in communities, protect livelihoods, avert layoffs, and save the
state money.
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c) Employees becoming owners would create opportunities for wealth-building and community
stability. It would also help California create a more inclusive, equitable, and stable economy,
supported by the studies of employee-owned businesses and their success and resiliency during the
Great Recession and the COVID-19 pandemic.
d) Fairness to employees is critical for the success of employee ownership transactions. Employee
ownership should supplement, not supplant, fair wages, health insurance, retirement benefits, and
the freedom to join a union. Employee ownership transactions should be structured to provide
employees with a fair valuation of their ownership stake with an independent trustee as a best
practice for the transaction.
2) Expresses the intent of the Legislature to establish a dedicated hub within the Office of Small
Business Advocate that will help educate stakeholders about employee ownership, assist business
owners and employees in navigating available resources, provide funding for education, outreach, and
technical assistance, and streamline and reduce barriers to employee ownership.
3) Requires the Office of Small Business Advocate, upon appropriation by the Legislature, to establish
the California Employee Ownership Program, which will be administered by an Employee Ownership
Program Manager (Manager), which is appointed by the Small Business Advocate.
4) Authorizes the Manager to be responsible for the following duties:
a) Manage the Employee Ownership Education and Outreach Grant Program and the Employee
Ownership Conversion Technical Assistance Grant Program.
b) Work with all California state agencies whose regulations and programs affect employee-owned
companies and businesses with the potential to become employee-owned, to enhance opportunities
and reduce barriers.
c) Partner with grantee partners and other relevant private, nonprofit, and public organizations
including, but not limited to, professional and trade associations, financial institutions, trade
unions, work centers, Small Business Development Centers, economic and workforce
development organizations, and nonprofit entities to promote employee ownership benefits and
succession models.
d) Develop and make available materials regarding employee ownership benefits and succession
models.
e) Provide a referral service to help business owners, labor unions, and worker centers find
appropriate legal, financial, and technical employee ownership resources and services.
f) Work with the California Infrastructure and Economic Development Bank, the California
Pollution Control Financing Authority, and related entities to shape and implement guidance on
lending to broad-based employee ownership vehicles.
g) Issue an annual report on program activities, including recommendations for improvement.
h) Report employee ownership transition-related concerns and recommendations to the Small
Business Advocate.
5) Requires, subject to appropriation, the establishment of the Employee Ownership Education and
Outreach Grant Program for the purpose of funding education and outreach programs that increase
awareness and understanding of employee ownership transitions.
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a) Requires funding to be awarded to nonprofit organizations to develop and implement outreach
initiatives and education programs that increase awareness about business transitions to broad-
based employee ownership vehicles.
b) Requires grants to be used to perform qualified education and outreach services, as specified,
including one grant to be awarded to a labor union and worker center for a specified marketing
campaign.
c) Requires grants to be awarded for an initial two-year term, beginning July 1, 2023, and ending
June 1, 2025. Grantees may apply for renewal or extension of the initial two-year term, subject to
approval and availability of funds through the 2026–27 fiscal year.
d) Limits awards to no more than five qualified nonprofit organizations during any two-year term.
e) Limits indirect costs to 15% of the total expenses of each grant.
f) Specifies that qualified education and outreach services include the following:
i) Services designed to increase awareness of worker-ownership and transitions to broad-based
employee ownership vehicles.
ii) Services designed primarily to reach a high volume of business owners through direct
outreach, or through educational intermediaries, including the following:
(1) Capital providers.
(2) Professional service providers.
(3) Business technical assistance providers.
(4) Industry and business associations.
(5) Labor unions and worker centers.
(6) Local governmental entities.
iii) Development of a statewide coordinated marketing campaign to increase business owner and
business service provider awareness of transitions to broad-based employee ownership
vehicles and available Employee Ownership Program resources, including the Employee
Ownership Conversion Technical Assistance Grant Program, as specified.
g) Requires the grantee, when delivering qualified education and outreach services, to include
information on all types of broad-based employee ownership vehicles and on the range of
governance and management structures that are possible within them, including democratically
governed business structures and employee participation in business decision-making and
governance.
h) Requires a nonprofit organization to satisfy the following to be eligible for a grant under the
program:
i) Have demonstrated experience in providing outreach and education about worker ownership
and business transitions to one or more broad-based employee ownership vehicles.
ii) Have demonstrated experience providing outreach and education services in California.
i) Authorizes a labor union and worker center to be awarded grants in partnership with a qualified
nonprofit organization to support education and outreach to businesses at risk of closure or
succession.
j) Requires the manager to prepare an annual report that includes the following:
i) The number of businesses reached.
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ii) Types and number of outreach activities.
iii) The information provided through these activities.
k) Requires the report to be submitted to the Director of the Governor’s Office of Business and
Economic Development, and posted on its internet website.
6) Requires, subject to appropriation, the establishment or the contracting with a third party or grant
partner to administer, an Employee Ownership Technical Assistance Grant Program with the purpose
of subsidizing the cost of conversion to employee ownership.
a) Specifies that the purpose of the grant program is to partially subsidize conversion costs for
qualified businesses transitioning to broad-based employee ownership vehicles, making these
transitions more accessible to California businesses, ensuring these transitions benefit California
workers, and creating wealth-building opportunities for Californians.
b) Requires the manager to preapprove grant applications to qualified service providers and disburse
grant funds upon receipt of invoices or contracts for qualified conversion services rendered to one
or more qualified businesses.
c) Prohibits grants from exceeding the lesser of 50% of the costs of qualified conversion services of a
qualified business or $50,000.
d) Requires qualified service providers to provide information about each qualified business
receiving qualified conversion services, including the name, primary address, and business entity
identifying number on file with the Secretary of State.
e) Defines the following terms for the purpose of this program:
i) “Qualified business” means a business that is considering or undergoing a transition to
employee ownership, and that satisfies all of the following:
(1) Is headquartered in California.
(2) Has at least 10 employees.
(3) Has been in business for at least 10 years.
The manager is authorized to make exceptions for businesses with as few as three employees,
and businesses in operation less than 10 years.
ii) “Qualified conversion services” shall include, but not be limited to, the following:
(1) Prefeasibility assessments.
(2) Feasibility assessments.
(3) Accounting services.
(4) Legal services.
(5) Transition plans.
(6) Succession planning services.
(7) Training workers on employee ownership and democratic management and governance.
iii) “Qualified service provider” means a provider of qualified conversion services that satisfies all
of the following:
(1) Has at least two years of experience working with businesses considering or undertaking a
transition to employee ownership.
(2) In the case of a service provider that is providing feasibility studies, either has
demonstrated experience in assessing debt capacity and conducting employee ownership
feasibility studies, or is providing feasibility studies in collaboration with another business
entity that has such demonstrated experience.
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(3) A qualified service provider may provide some or all of the qualified conversion services,
as specified.
f) Requires the manager to prepare an annual report that includes the following:
i) Number of businesses served using funds awarded pursuant to this section.
ii) Types of services provided.
iii) Number of jobs created or saved.
g) Requires the report to be submitted to the Director of the Governor’s Office of Business and
Economic Development, and posted on its internet website.
7) Specifies that nothing in this bill prevents employee-owned companies from participating in
California capital programs, as specified.
8) Defines the following terms:
a) “Broad-based employee ownership vehicle” means any of the following:
i) An employee-owned corporation that is a corporation under employee ownership. “Employee
ownership” means, [pursuant to subdivision (c) of Section 91502.1] the majority ownership of
a business in this state by a majority of its employees under either of the following methods:
(1) Establishment of an Employee Stock Ownership Plan (ESOP) pursuant to the federal
Employee Retirement Income and Security Act. All stock initially issued at the time of
formation of the employee-owned corporation shall be allocated to the employees and
become fully vested within five years of the date the employee-owned corporation begins
operation. Voting rights of the employees are established in accordance with Section
409A(e) of the Internal Revenue Code as effective on January 1, 1983.
(2) Establishment of a worker-owned cooperative.
ii) An eligible worker-owned cooperative or an eligible member-owned organization where the
voting interest or stock is held by members, and the governing body is elected by the members
on the basis of one vote per member.
iii) A business wherein the majority of stock is owned by an employee stock ownership plan.
b) “California capital programs” means state programs offering capital assistance to businesses,
including, but not limited to, the Small Business Loan Guarantee Program, the State Small
Business Credit Initiative, the California Rebuilding Fund, and the California Capital Access
Program.
c) “Eligible worker-owned cooperative” has the same definition as that term is defined in a specified
section of the federal Internal Revenue Code, which states that an eligible worker-owned
cooperative includes any of the following organizations:
i) An organization subject to the tax treatment of a cooperative, as specified in the federal
Internal Revenue Code.
ii) An organization where a majority of the membership is composed of employees of such
organization.
iii) An organization where a majority of the voting stock is owned by members.
iv) An organization where a majority of the board of directors is elected by the members on the
basis of 1 person 1 vote.
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v) An organization where a majority of the allocated earnings and losses of which are allocated to
members on the basis of (1) patronage, (2) capital contributions, or (3) some combination of
(1) and (3).
d) “Employee stock ownership plan” or “ESOP” has the same definition as that term is defined in a
specified section of the federal Internal Revenue Code, which states that an “employee stock
ownership plan” means a defined contribution plan which is either of the following:
i) A stock bonus plan which is qualified, or a stock bonus and a money purchase plan, both of
which are qualified under section 401(a), and which are designed to invest primarily in
qualifying employer securities.
ii) Otherwise defined in regulations prescribed by the Secretary.
e) “Employee ownership transition” means the process by of business entering a broad-based
employee ownership vehicle.
f) “Feasibility assessment” means a financial assessment of a company’s debt capacity and other
factors that will determine viable employee-ownership transition scenarios.
g) “Independent ESOP trustee” means an ESOP trustee that is unrelated to the company, its officers,
and its shareholders, and is in the business of serving as an ESOP fiduciary.
h) “Manager” means the Employee Ownership Program Manager.
EXISTING LAW:
1) Establishes the Governor’s Office of Business and Economic Development (GO-Biz) within the
Governor’s Office for the purpose of serving as the lead state entity for economic strategy and
marketing of California on issues relating to business development, private sector investments, and
economic growth.
2) Establishes the Office of the Small Business Advocate within GO-Biz to serve as the principal
advocate in the state on behalf of small businesses, including, but not limited to, advisory participation
in the consideration of all legislation and administrative regulations that affect small businesses, and
advocacy on state policy and programs related to small businesses.
3) Authorizes the Office of the Small Business Advocate to administer grant programs, including, but
not limited to:
a) The Small Business Technical Assistance Expansion Program to provide technical assistance to
small businesses through partnership agreements with one or more small business technical
assistance centers.
b) The California Dream Fund to provide microgrants to individuals from underserved small
business groups participating in intensive start-up business training programs
c) The California Microbusiness COVID-19 Relief Grant Program to provide grants to
microbusinesses (under five employees) through county and related nonprofit intermediaries.
d) The California Small Business COVID-19 Relief Grant to provide grants to qualified small
businesses affected by COVID-19 in order to support their continued operation.
e) The California Venues Grant Program to provide grants to eligible independent live events that
have been affected by COVID-19 in order to support their continued operation.
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f) The California Nonprofit Performing Arts to provide grants to eligible nonprofit performing arts
organizations to encourage workforce development.
g) The Capital Infusion Program to provide technical assistance to small businesses that are seeking
capital through contracts with Small Business Development Centers.
FISCAL EFFECT: Unknown
COMMENTS:
1) Why Employee-Owned Businesses? Employee-owned businesses can take several forms, including
worker cooperatives and ownership established through an Employee Stock Ownership Plan (ESOP),
which may take the form of stock grants or stock options. ESOPs are the most common form of
employee ownership in the US. Both the worker cooperative model and the ESOP can serve as
retirement plans for employees through the sale of their stock when they retire.
Employee-ownership has shown be have many advantages, especially during times of economic
stress. One study conducted by Rutgers and funded by the Employee Ownership Foundation found
that the majority of employee-owned companies with ESPOPs outperformed non-employee-owned
firms during the pandemic. More specifically, the study found that compared to other businesses,
employee owned firms were:
3-4 times more likely to retain non-manager and manager employees.
3.2 times more likely to retain staff—even when other businesses received funding through the
Paycheck Protection Program and the employee owned firms did not.
Significantly less likely to reduce employees’ hours or pay.
More likely to send employees home to work during the pandemic—and did so earlier.
More likely to provide employees with personal protective equipment, such as gloves and
masks.
In a 2019 nationwide survey funded by the Employee Ownership Foundation and conducted by a
research center at Rutgers University, they found that 72% of respondents would prefer to work for a
company owned by the employees. Further, that employee turnover at employee-owned companies is
three times lower than at conventionally owned businesses.
While there are many advantages of establishing an employee-owned company the transition to
employee ownership should be undertaken with care and can be expensive. One estimate published in
2020 on the costs of establishing an ESOP in 2015, ranged from $60,000 to hundreds of thousands of
dollars. Among other considerations are the initial appraisal, a feasibility study, financial structuring,
and the costs of designing the plan, filing government forms, negotiating with lenders, drawing up
legal documents, and coordinating financial advisers who set up the classes of stocks.
SB 1407 takes a comprehensive approach to help educate stakeholders about employee ownership,
assist business owners and workers in navigating available resources, provide funding for technical
assistance, and streamline and reduce barriers to the existing business start-up and transition process.
SB 1407 will increase resources for and reduce barriers to employee ownership by:
Establishing the employee ownership resource center within the Office of the Small Business
Advocate.
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Establishing a grant program to increase awareness of the fundamentals of employee ownership
transitions and operations.
Establishing a grant programs to partially subsidize the cost of feasibility assessments, legal fees,
and other services that businesses need when transitioning to employee ownership.
Leveraging the expertise of the resource center to streamline existing funding mechanisms to
affirm that employee ownership transitions are an eligible use of funds.
The author has also made a $20 million budget request to fund the bill related activities by the Office
of the Small Business Advocate and the establishment of the outreach/education and conversation
assistance programs.
2) The Challenge of Income Inequality during COVID-19: While California’s dominance in
innovation-based industries is unquestionable, the divide between the middle- and lower-income
households and the top-income earners is accelerating. Even when California’s unemployment rate
was at historic lows pre-pandemic, unemployment within certain geographic regions and population
groups remained significantly higher, as did the number of people in the state who were not
participating in the core economy.
The coronavirus has deepened California’s income inequality, with the state’s most vulnerable being
at the greatest risk for poor health outcomes, having the least amount of savings to survive its
economic impacts, and being most likely to work in low-paid and least protected essential businesses.
A closer look at disaggregated employment data reveals a bifurcated economic recovery. In March
2020, California reported an unemployment rate of 5.1% as compared to the US rate of 4.5%. From
the employment side, this represents 18.1 million people in California, with 82.5% being employed in
full-time work (based on a 12-month moving average). During this same period, three of California’s
58 counties had unemployment, below 3.0%, with San Mateo County reporting the lowest at 2.5%
(based on not seasonally adjusted data). Colusa County (21.4%) was reported as having the highest
unemployment rate among counties in March 2020.
Two years later (March 2022), statewide unemployment is 4.9%, just slightly lower than 5.1%
reported in March 2020. As noted in the prior comment, employment by industry sector is up in every
sector, and three of the 11 sectors having recovered all jobs. However, the disparities have grown.
Chart 1 – Selected Data on Unemployment shows geographic and demographic unemployment-
related information for the year the World Health Organization announced that the COVID-19 was a
global pandemic and the following two years.
Chart 1 - Selected Data on Unemployment (March 2020, 2021, and 2022)
Unemployment Rate (Not Seasonally Adjusted)
Unemployment Rate (Not Seasonally Adjusted)
(12 month moving average)
March March March March March March
2020 2021 2022 2020 2021 2022
California 5.1% 8.2% 4.2% California 4.1% 11.1% 6.3%
(comparable rate) (comparable rate)
Colusa County 21.4% 15.4% 12.5% Blacks 5.2% 13.9% 10.5%
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Imperial County 20.4% 15.7% 12.3% Hispanics 4.7% 12.5% 6.9%
Los Angeles County 5.6% 10.9% 4.9% Whites 4.0% 10.8% 5.9%
Orange County 4.19% 7.0% 3.1% 16 to 19 years old 15.1% 24.5% 13.6%
Riverside County 4.7% 7.7% 4.3% 20 to 24 years old 7.6% 17.5% 10.1%
Sacramento County 4.3% 7.4% 4.0% 25 to 34 years old 4.1% 11.7% 6.1%
San Bernardino County 4.4% 7.8% 4.3%
San Francisco City & *The Employment Development Department reports
3.5% 6% 2.5%
County a March 2021 (12-month moving average) Labor
San Mateo County 2.5% 5.0% 2.3% Participation Rate (LPR) of 61.8%. The LPR for
veterans is 43.2% vs nonveterans LPR of 64.6%.
Tulare County 13.2% 11.6% 8.4%
Source: www.edd.ca.gov
As illustrated in Chart 1, the disparities among population groups continued, and most cases increased
for certain areas of the state and individuals from certain demographics. For example, unemployment
among Blacks in March 2020 was at a historic low of 5.2%, which was still above the state average of
4.1%. One year into COVID-19 and the disparity between the rate of Black unemployment and the
statewide rate substantially increased (13.9% compared to 11.1%). Two years since the beginning of
the pandemic, the unemployment rate for Blacks is reported as 10.5% versus 6.3% for the workforce
as a whole. From the beginning of the pandemic to March 2022, the disparity between the
unemployment rate for Blacks has grown from 1.1% in March 2020 to 2.8% in March 2021 to 4.2% in
March 2022.
Reports on May 2022 unemployment continued along similar trends with overall state unemployment
down 0.5% from March (4.6%) and 42,900 jobs being added. San Mateo had the lowest
unemployment rate of 1.7% and Imperial County the highest at 11.0%. For Blacks, however, the
unemployment was only down to 9.6% and 6.0% was reported for Hispanic workers. [The
comparable unemployment rate for demographic comparisons was 5.5%.] Again, the highest
unemployment was among 16-19 and 20-24 year olds.
The disparities shown in these charts are driven by and also influence a range of poor economic and
societal outcomes, including, but not limited to, limited educational attainment, economic insecurity,
poor health outcomes, negative engagements with law enforcement, and lack of a safety net for the
elderly and individuals with special needs. COVID-19 magnified these effects, further putting strains
on already struggling low-wage workers, particularly in the Black and Latinx communities.
This increased exposure to COVID-19, combined with the socio-economic impacts on underlying
health, resulted in a statistically higher number of cases and deaths compared to the group’s percent of
the population. Chart 2 provides information from the California Department of Public Health
relating to COVID-19 cases in California by race and ethnicity. Data is current as of June 13, 2022.
Chart 2 - COVID-19 Case Loads and Outcomes by Race and Ethnicity
Race/Ethnicity Percent Percent Percent CA
No. Deaths
Cases Deaths population
Latino 46.4% 39,479 43.7% 38.9%
White 24.9% 31,392 34.7% 36.6%
Asian 9.6% 9,8173 10.9% 15.4%
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African American 5.3% 6,308 7.0% 6.0%
Multi-Race 1.1% 1,436 1.6% 2.2%
American Indian or Alaska Native 0.4% 445 0.5% 0.5%
Native Hawaiian & other Pacific Islander 0.7% 581 0.6% 0.3%
Other 11.6% 972 1.1% ---
Total with data 100% 90,430 100% 100%
Source: California Department of Public Health, accessed June 9, 2022
The chart above, All Cases and Deaths Associated with COVID-19 by Race and Ethnicity, represents
data from 9,106,031 total cases, with 19% of those cases missing race/ethnicity. There are a total of
91,006 deaths, with approximately 1% of those deaths missing race/ethnicity.
3) California’s Use of Federal SSBCI Funds: The American Rescue Plan Act of 2021 included $10
billion for the reauthorization of the State Small Business Credit Initiative of 2010. California
anticipates receiving approximately $1.8 billion in federal SSBCI funding. Chart 3 outlines
California’s anticipated federal SSBCI funding.
Federal law required each application to include detailed information on how SSBCI funds will
provide access to capital for small businesses in underserved communities and to business owners
who are from groups who meet the definition of socially and economically disadvantaged individuals,
also referred to as SEDI. According to the SSBCI Guidelines:
A “Socially and economically disadvantaged individual” means an individual who is a socially
disadvantaged individual or an economically disadvantaged individual, as defined in the Small
Business Act.
“Underserved communities” mean small businesses located in low- and moderate-income,
minority, and other underserved communities, including women- and minority-owned small
businesses.
“Treasury encourages states to consider the following areas when including plans regarding ‘other
underserved communities’ in their report: rural communities; communities undergoing economic
transitions, including communities impacted by the shift towards a net-zero economy or
deindustrialization; and communities surrounding Minority-Serving Institutions.”
Under the SEDI incentive formula, California could receive up to $99.8 million for expending 48.87%
of SSBCI Capital funds in SEDI eligible businesses during the first tranche of SSBCI deployment.
Employee-owned businesses could play an important role in disbursing the benefits of SSBCI funding
throughout the state and among historically undercapitalized business owners.
States and tribal governments will receive SSBCI funds from the US Treasury in three tranches. In
order to access the next tranche of funding, the state or tribal government must demonstrate that at
least 80% of the current tranche of funding has been encumbered and/or used. To facilitate the
drawing down of federal funding, the IBank and CBCFA have stated that they will have an MOU in
place to enhance their ability to transfer moneys between programs.
Chart 3 - California’s Estimated SSBCI Funding*
Categories of Funding Funding Available
Total Federal Funding Authorized $10,000,000,000
Total CA SSBCI Allocation $1,181,997,613
Subtotal CA Prorated SSBCI Allocation $894,973,879
Subtotal CA SSBCI SEDI Allocation $187,189,392
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Subtotal CA SSBCI SEDI Performance Allocation $99,834,342
Funding is Distributed in Three Tranches. States
Funding in
Must Encumber 80% of their Funds to Access 80% Target
Tranche
Next Tranche of Funding
Tranche 1 $357,113,879 $285,691,104
Tranche 2 $407,031,050 $661,315,944
Tranche 3 $417,852,683
*This is based on California’s allocation as of January 2022.
Source: Document submitted to the Legislature by the IBank and CPCFA, January 7, 2022
California’s application proposes to fund three existing small business capital programs and create at
least one additional program. Chart 4 provides further details on California’s proposed allocation
plan.
Chart 4 - California’s Proposed SSBCI Allocation Plan*
Existing Programs Funded Funding Allocated
Small Business Loan Guarantee (IBank) $390,998, 806
California Capital Access Program (CPCFA) $118,199,762
California Capital Access – Collateral Support Program (CPCFA) $472,799,045
New Program(s) Funded Funding Allocated
Venture Capital (IBank) $200,000,000
Loan Participation (CPCFA) – under consideration
Total CA SSBCI Allocation $1,181,997,613
*This is based on California’s allocation as of January 2022.
Source: Document submitted to the Legislature by the IBank and CPCFA, January 7, 2022
Another key aspect of SSBCI are the leverage ratios. At a minimum, $1 of public expenditure must
result in $1 of new private investments. In the aggregate, the state’s SSBCI programs are required to
target an overall leverage ratio of at least $10 of new private investment for each $1 of public funds.
These leverage requirements, coupled with a drive to utilize SSBCI funds quickly in order to access
the next tranche of funds, create tension between undertaking strategic actions to reach small business
borrowers in underserved communities and from SEDI-eligible businesses. The Legislature, as the
policy-making body, should send clear signals about how to approach these multifaceted goals.
One of the objectives of SB 1407 is to mainstream employee-owned businesses, including ensuring
that they are finance-ready and eligible to participate in the state’s small business financing programs.
Given the challenges the state will face in fully deploying the SSBCI funds, providing education,
technical assistance, and small grants to help businesses convert to employee-owned makes sense.
4) The Governor’s Office of Business and Economic Development: In April 2010, the Governor’s
Office of Economic Development was established to provide a one-stop shop for serving the needs of
businesses and economic developers. While initially established through Executive Order S-01-10,
the office was later codified and renamed GO-Biz. [AB 29 (John A. Pérez), Chapter 475, Statutes of
2010]
GO-Biz carries out its mission through multiple functional areas, including but not limited to the
following units: California Business Investment Unit, Zero Emission Vehicles, the Office of Permit
Assistance, the Office of the Small Business Advocate, International Affairs and Trade, the California
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Competes Tax Credit Program, the Community and Local Equity Grants Unit, and the Community-
Based Solutions Unit. GO-Biz provides a range of programs and services that support business
development, including assisting small businesses in understanding and complying with state
regulations, permitting assistance for new and expanding businesses, and assisting the state in building
out its zero-emission vehicle infrastructure.
In 2021, GO-Biz published and has since updated the California Business Come Back Guide to assist
businesses in identifying relevant new and existing state funding resources for recovery and success.
State resources are listed by agency, as well as by program. A particularly useful chart within the
guide includes information on total funds, maximum awards, eligibility, timing, and contact
information.
GO-Biz has historically used a service delivery model that flows across and through different GO-Biz
units, depending on the business’ needs. For example, a foreign company planning to expand in
California may initially become acquainted with GO-Biz through an in-bound trade mission hosted by
the International Trade and Investment Office but may ultimately be further assisted by the California
Business Investment Program and the Office of Permit Assistance.
5) The Role of Small Businesses within the California Economy: California’s dominance in many
economic areas is based, in part, on the significant role small businesses play in the state’s $3.1
trillion economy. Two studies, one by the US Census Bureau and another by the Kaufman
Foundation, found that net job growth was strongest among businesses with less than 20 employees.
Among other advantages, small businesses are crucial in the state’s international competitiveness, and
they are an important means for dispersing the economic positive impacts of trade within the
California economy.
In 2018 (most recent full set of data), of the 4.4 million firms in California, there were 3.4 million
nonemployer firms as compared to 954,632 employer firms.
Total revenues for nonemployer sole proprietorships, across all industry sectors, were $189 billion
in receipts in 2017.
Businesses with less than five employees are classified as microenterprises. In 2017, there were
473,641 microenterprises that had one or more employees.
Microenterprises, including both nonemployer and up-to-5-employee businesses, comprise the
single largest segment of the California business community, representing 89.0% (3.9 million) of
all businesses in the state.
Microenterprises have many unique features and provide important benefits to local communities,
according to a recent study from the Microenterprise Fund for Innovation, Effectiveness, Learning,
and Dissemination (FIELD) at the Aspen Institute. These benefits include:
Providing products and services tailored to meet local and neighborhood needs.
Stimulating an inflow of revenues to and within local communities.
Serving as catalysts for neighborhood reengagement.
Revitalizing neighborhoods that may otherwise have vacant storefronts.
Providing role models and support for future entrepreneurs.
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Excluding sole proprietorships, businesses with less than 20 employees comprise over 88.6% of all
businesses and employ approximately 17.4% of all workers. Businesses with less than 100 employees
represent 97.3% of all businesses and employ 34.5% of the workforce.
The chart below displays 2018 data (the most recent full set of data) on California employer
businesses, including payrolls, employment, and number of firms, which may comprise one or more
establishments.
2018 Business Profile by Size (excludes nonemployer firms)
Area Employment Number Percent of Percent of Annual
Employees
Description Size of Firms Firms Jobs Payroll ($1,000)
United States Total 6,075,937 130,881,471 $7,097,310,272
12.8% 11.6%
California Total 779,825 15,223,664 $1,020,958,926
U.S. Firms U.S. Jobs
61.8% of 4.5% of
United States 0-4 3,757,163 5,967,955 $287,379,518
U.S. Firms U.S. Jobs
62.2% of 4.9% of
California 0-4 485,387 746,240 $46,663,550
CA Firms CA Jobs
89.0% of 16.3% of
United States <20 5,411,180 21,337,272 $898,874,051
U.S. Firms U.S. Jobs
88.7% of 17.4% of
California <20 692,139 2,650,204 $130,748,308
CA Firms CA Jobs
98.1% of 32.7% of
United States 0-99 5,962,057 42,918,809 $1,859,572,577
U.S. Firms U.S. Jobs
97.4% of 34.2% of
California 0-99 759,654 5,214,752 $261,490,973
CA Firms CA Jobs
99.6% of 46.7% of
United States <500 6,055,421 61,244,031 $2,819,089,905
U.S Firms U.S. Jobs
99.1% of 48.2% of
California <500 773,386 7,339,390 $395,286,015
CA Firms CA Jobs
0.33% of 53.2% of
United States 500+ 20,516 69,637,440 $4,278,220,367
U.S. Firms U.S. Jobs
0.82% of 51.7% of
California 500+ 6,439 7,884,274 $625,672,911
CA Firms CA Jobs
Source: https://www.census.gov/data/tables/2018/econ/nonemployer-statistics/2018... l
These nonemployer and small employer firms create jobs, generate taxes, support important industry
sectors, and revitalize communities. While their small size allows them to be more flexible in meeting
niche foreign and domestic market needs, it also results in certain market challenges.
These challenges include having difficulty meeting the procedural requirements of the state’s complex
regulatory structure and the traditional credit and collateral requirements of mainstream financial
institutions. Specialized technical assistance, access to credit enhancements, and targeting of state
procurement activities help many small businesses overcome or at least minimize these difficulties.
6) Proposed Amendments: Below is a list of amendments the committee members may wish to review
when considering the bill.
a) Revise the name of the overall activity to the creation of a “Hub” within the Office of the Small
Business Advocate, rather than a “Program” to distinguish it from individual grant programs
established by the bill.
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b) Consolidate the annual reporting requirements.
c) Clarify the purpose and applicability of the provisions related to ESOP participation in California
capital programs.
d) Make other technical and conforming changes.
7) Related Legislation: Below is a list of bills from the current and prior sessions.
a) AB 29 (John A. Pérez, Feuer, and V. Manuel Pérez) Office of Business and Economic
Development: This bill establishes GO-Biz to include a newly codified California Business
Investment Services Program and the existing Office of the Small Business Advocate. Status:
Signed by the Governor, Chapter 475, Statutes of 2011.
b) AB 1247 (Medina and Bocanegra) Small Business Finance Center: This bill establishes the
California Small Business Finance Center at the IBank within the Governor’s Office of Business
and Economic Development and transfers the authority to administer the small business loan
guarantee program and other related programs to the California Small Business Finance Center.
Status: Signed by the Governor, Chapter 537, Statutes of 2013.
c) AB 2849 (M. Bonta) POWER Act: This bill establishes the Promote Ownership by Workers for
Economic Recovery (POWER) Act which requires the Secretary of the Labor and Workforce
Development Agency (LWDA) to organize, and members to maintain, a corporation under the
Nonprofit Mutual Benefit Corporation Law to function as a membership organization for
cooperative labor contractors (CLCs), establish or grant membership to cooperative labor
contractors, as defined, and provide management and other business services to its members.
Status: Pending in Senate Committee on Labor, Public Employment and Retirement.
REGISTERED SUPPORT / OPPOSITION:
Support
Ownership America (co-sponsor)
Worker-Owned Recovery California (WORC) Coalition (co-sponsor)
Project Equity (co-sponsor)
Alternative Technologies Cooperative
American Sustainable Business Council
California State Treasurer
Cameo - California Association for Micro Enterprise Opportunity
City of Los Angeles Councilmember Nithya Raman
Consumer Federation of California
Cooperacion Santa Ana
Employee Ownership Expansion Network
Jewish Vocational & Career Counseling Service
LA Coop Lab
Lift Economy
Pavement Recycling Systems
Pilipino Workers Center
Policylink
Public Counsel
Redf
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The Esop Association
The Foundation for Economic and Social Justice
U.S. Federation of Worker Cooperatives
United Taxi Workers of San Diego
Uptima Entrepreneur Cooperative
Ventures
Opposition
None on file
Analysis Prepared by: Toni Symonds / J., E.D., & E. / (916) 319-2090
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