Challenges and Benefits of Employee- Owned Small Businesses (House Small Business Committee hearing, February 12, 2020)
Summary
Transcript of the House Committee on Small Business hearing Challenges and Benefits of Employee-Owned Small Businesses, convened February 12, 2020 during the 116th Congress, Second Session, published as Small Business Committee Document Number 116-072 (GPO 39-620). Chairwoman Nydia Velázquez and Ranking Member Steve Chabot gave opening statements. Witnesses were Daniel Goldstein of Folience, R.L. Condra of National Cooperative Bank, John Abrams of South Mountain Company, and Mark Gillming of Messer Construction Co. Appendix materials include statements from the American Sustainable Business Council, Capital Impact Partners, the National Center for Employee Ownership, the National Cooperative Business Association CLUSA, Capital for Communities, the Cooperative Fund of New England, Cooperation Works, ECR and LEAF.
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CHALLENGES AND BENEFITS OF EMPLOYEE-
OWNED SMALL BUSINESSES
HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
HEARING HELD
FEBRUARY 12, 2020
Small Business Committee Document Number 116–072
Available via the GPO Website: www.govinfo.gov
U.S. GOVERNMENT PUBLISHING OFFICE
39–620 WASHINGTON : 2021
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HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA VELÁZQUEZ, New York, Chairwoman
ABBY FINKENAUER, Iowa
JARED GOLDEN, Maine
ANDY KIM, New Jersey
JASON CROW, Colorado
SHARICE DAVIDS, Kansas
JUDY CHU, California
MARC VEASEY, Texas
DWIGHT EVANS, Pennsylvania
BRAD SCHNEIDER, Illinois
ADRIANO ESPAILLAT, New York
ANTONIO DELGADO, New York
CHRISSY HOULAHAN, Pennsylvania
ANGIE CRAIG, Minnesota
STEVE CHABOT, Ohio, Ranking Member
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa, Vice Ranking Member
TROY BALDERSON, Ohio
KEVIN HERN, Oklahoma
JIM HAGEDORN, Minnesota
PETE STAUBER, Minnesota
TIM BURCHETT, Tennessee
ROSS SPANO, Florida
JOHN JOYCE, Pennsylvania
DAN BISHOP, North Carolina
MELISSA JUNG, Majority Staff Director
JUSTIN PELLETIER, Majority Deputy Staff Director
KEVIN FITZPATRICK, Staff Director
(II)
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CONTENTS
OPENING STATEMENTS
Page
Hon. Nydia Velázquez ............................................................................................. 1
Hon. Steve Chabot ................................................................................................... 2
WITNESSES
Mr. Daniel Goldstein, President and CEO, Folience, Cedar Rapids, IA ............. 5
Mr. R.L. Condra, Vice President of Advocacy and Government Programs,
National Cooperative Bank, Arlington, VA ........................................................ 7
Mr. John Abrams, CEO and Co-Owner, South Mountain Company, West
Tisbury, MA .......................................................................................................... 9
Mr. Mark Gillming, Senior Vice President, Messer Construction Co., Cin-
cinnati, OH ........................................................................................................... 10
APPENDIX
Prepared Statements:
Mr. Daniel Goldstein, President and CEO, Folience, Cedar Rapids, IA ...... 27
Mr. R.L. Condra, Vice President of Advocacy and Government Programs,
National Cooperative Bank, Arlington, VA ................................................ 35
Mr. John Abrams, CEO and Co-Owner, South Mountain Company, West
Tisbury, MA ................................................................................................... 38
Mr. Mark Gillming, Senior Vice President, Messer Construction Co., Cin-
cinnati, OH .................................................................................................... 40
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
American Sustainable Business Council ........................................................ 49
Capital Impact Partners .................................................................................. 51
National Center for Employee Ownership ..................................................... 53
National Cooperative Business Association CLUSA ..................................... 64
Capital for Communities .................................................................................. 68
Cooperative Fund of New England ................................................................. 71
Cooperation Works ........................................................................................... 73
ECR .................................................................................................................... 76
LEAF ................................................................................................................. 81
NRS .................................................................................................................... 85
Sustainable Economics Law Center ................................................................ 89
US Federation of Worker Cooperatives .......................................................... 91
(III)
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CHALLENGES AND BENEFITS OF EMPLOYEE-
OWNED SMALL BUSINESSES
WEDNESDAY, FEBRUARY 12, 2020
HOUSE OF REPRESENTATIVES,
COMMITTEE ON SMALL BUSINESS,
Washington, DC.
The committee met, pursuant to call, at 11:30 a.m., in Room
2360, Rayburn House Office Building. Hon. Nydia Velázquez
[chairwoman of the Committee] presiding.
Present: Representatives Velázquez, Finkenauer, Golden, Kim,
Davids, Delgado, Craig, Chabot, Balderson, Hern, Hagedorn,
Stauber, Burchett, Spano, Joyce, and Bishop.
Chairwoman VELÁZQUEZ. Good morning. The Committee will
come to order.
I thank everyone for joining us this morning, and I want to espe-
cially thank the witnesses for being with us today.
Our Committee has a longstanding tradition of working in a bi-
partisan manner on behalf of America’s 30 million small busi-
nesses. We work together to make the programs at SBA more effec-
tive and seek ways to encourage entrepreneurship and job growth
on Main Street.
And because small businesses are such an important part of our
economy, what we do here impacts the lives of nearly every Amer-
ican.
At a time when income and wealth inequality are at record lev-
els, real wages for middle class workers are nearly stagnant, retire-
ment security is no longer guaranteed, one way to combat these
problems is through the employee-owned business model. Em-
ployee-owned companies can take on many forms, but the central
premise is that interests of the employees and owners are aligned.
As a business generates more revenue and profits, a direct connec-
tion is drawn between an employees’ work and how much he or she
is compensated, thereby creating a culture of ownership.
This business model helps workers and communities raise their
standard of living and quite literally feel more invested in the suc-
cess of the enterprise. The best-known kinds of employee ownership
are the Employee Stock Ownership Plan, also known as an
‘‘ESOP’’, and cooperatives. There are many benefits to employee
ownership that can address some of the economic issues facing
workers today. ESOPs report higher wages, better employee bene-
fits, and stronger job security, especially during periods of economic
distress.
In addition to better wages and benefits, worker-owned firms are
also known for reinvesting more in their local community than con-
(1)
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ventional businesses, and for democratizing management and deci-
sion making. Because the workers themselves make the company’s
strategic decisions, there is little danger of a worker-cooperative
unexpectedly leaving town or being sold to outside investors. This
ensures the economic vitality of local communities.
In recent years, the option of converting a business to an em-
ployee-owned model has grown in popularity, though there are
challenges in financing and completing such a conversion. For ex-
ample, businesses seeking to transition to an employee-owned
model frequently face difficulty in obtaining adequate capital to
cover the costs, which are often prohibitive.
That is why last Congress, I led and helped pass the Main Street
Employee Ownership Act, which sought to minimize those capital
access barriers and encourage more SBA-backed lending to co-
operatives and ESOPs. By easing some burdensome guarantee re-
strictions, it was my hope that we could continue to make the em-
ployee-owned model more affordable for local businesses, creating
opportunities for more entrepreneurs, while financially empowering
employees with a stake in their workplace. The legislation was also
intended to help millions of baby boomers who own private busi-
nesses and plan to retire create a succession plan that helps them
‘‘cash out’’ while keeping jobs and investment in the local commu-
nity.
However, we have heard from numerous employee-owned busi-
nesses and lenders that accessing the SBA lending programs has
been nearly impossible because of current SBA policy. At today’s
hearing, we will hear about the good work that employee-owned
businesses, like the cooperatives who are booming in popularity all
over my district in Brooklyn, are doing for their employee-owners
and local communities.
We will also explore the negative impact of SBA’s failure to fol-
low Congressional intent when implementing the Main Street Em-
ployee Ownership Act. We know there are still many challenges
ahead as we seek to encourage greater employee ownership of busi-
ness, challenges that are often unique to either cooperatives or
ESOPs.
And as we continue our work here in the Small Business Com-
mittee, we need to hear about those challenges, too. So, I look for-
ward to hearing from our distinguished panel of witnesses today
about the benefits of employee ownership of business, but also the
challenges these unique businesses face in starting up and expand-
ing.
Again, I want to thank the witnesses for being here today, and
I now yield to the Ranking Member, Mr. Chabot, for his opening
statement.
Mr. CHABOT. Thank you, Madam Chairwoman.
In the lifecycle of a business, many important and crucial deci-
sions are made. Some of these decisions lead to brilliant success;
others could mean failure. One of the most significant decisions a
business must make is how to structure its organization. From sole
proprietorship to C corporations, there are a multitude of options
available that could benefit both the company and the company’s
employees.
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Today, we will explore one structure that has assisted thousands
of companies all across the country. The employee-ownership model
provides employees with an opportunity to own a stake in the com-
pany that they work for. One form of employee ownership is the
employee stock ownership plan, or ESOP as the Chairwoman men-
tioned for short. A company that is organized as an ESOP provides
its employees with the opportunity to obtain ownership shares
through a qualified defined contribution plan. Research shows that
ESOPs provide important retirement options for employees seeking
to save for their retirement.
This Committee has a long history of examining employee owner-
ship to determine both benefits and also some of the shortfalls. For
example, Chairwoman Velázquez authored the Main Street Em-
ployee Ownership Act of 2018, which was designed to enhance the
ability of the SBA, the Small Business Administration, to work
with businesses interested in employee ownership. Ultimately, that
legislation was favorably reported out of this Committee and was
signed into law as a part of the National Defense Authorization Act
for fiscal year 2010.
Today, we add another chapter to this Committee’s long history
of discussing employee ownership. In particular, I am interested in
hearing about what is working and what is not working as busi-
nesses move through the employee ownership conversion process.
Additionally, I would like to hear about the economic benefits of
employee ownership.
My hope is that this hearing will shed more light on this very
important business structure.
And I want to thank all the witnesses for being here and partici-
pating this morning. I look forward to all your testimonies.
And Madam Chairman, I yield back.
Chairwoman VELÁZQUEZ. Thank you, Mr. Chabot. The gen-
tleman yields back.
And if Committee members have an opening statement, we
would ask that they be submitted for the record.
I would like to explain the timing rules. The witness gets 5 min-
utes to testify and members get 5 minutes for questioning. There
is a lighting system to assist you. The green light comes on when
you begin, and the yellow light means there is 1 minute remaining.
The red light comes on when you are out of time, and we ask that
you stay within that timeframe to the best of your ability.
I would now like to introduce our witnesses today.
Our first witness is Mr. Daniel Goldstein. Mr. Goldstein is the
CEO and president of Folience, a company that for over 130 years
was primarily a family-owned print and broadcast media company.
Their ESOP was started in 1986 and became 100 percent ESOP-
owned in 2012. Today, 570 employee-owners work in Folience
media business, ambulance manufacturer, and high-end horse and
livestock trailer manufacturer.
We welcome Mr. Goldstein.
And Ms. Finkenauer, would you like to add anything to my intro-
duction of Mr. Goldstein?
I yield to the congresswoman.
Ms. FINKENAUER. Thank you. Thank you, Madam Chair-
woman, and thank you for holding this hearing today. We are so
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excited to have you all here, and thank you for taking time out of
your busy schedules.
Now, we obviously know employee ownership is good for busi-
ness, it is good for people, and it is good for communities like the
one I represent in Northeast Iowa. When employees have a stake
in the company, these businesses have deep roots in the area
where they are located. These businesses are more likely to stay
local and invest in their communities. Employees are literally
bought into the business, often increasing overall productivity and
success. Employee-owned businesses can also offer strong wages
and retirement security to people who work there. I am lucky to
have some excellent employee-owned businesses in my own district.
VGM Group, a member service organization for post-acute care
headquartered in Waterloo was named Iowa’s 2019 Best Large Em-
ployer by the Des Moines Register. Timberline, an electrical con-
tract manufacturer in Marion, has brought innovation and growth
to the area.
Folience, in Cedar Rapids, once a family-owned print and broad-
cast media company, has become an employee-owned company of
570 workers. Today, I am pleased to introduce my constituent,
Daniel Goldstein, president and CEO of Folience, who helped
transform the company. Since Daniel joined Folience in 2016, he
has helped diversify its revenue base through acquisitions. Today,
Folience owns media businesses, an ambulance manufacturer, a
high-end horse and livestock trailer manufacturer, and more. Dan-
iel brings 20 years of executive leadership to his current position.
He is a passionate advocate for employee ownership, and is on the
Board of Governors of the ESOP Association, the Board of Trustees
of the Employer Ownership Foundation, and the Board of the Em-
ployee Ownership Expansion Network. You are a very busy guy,
Daniel, and it means a lot to me that you took all this time to come
here to D.C. We look forward to hearing your insights today. Wel-
come to D.C., and thank you again for your leadership.
With that, Madam Chairwoman, I yield back.
Chairwoman VELÁZQUEZ. The gentlelady yields back.
Our second witness is Mr. R.L. Condra. Mr. Condra is the vice
president of Advocacy and Government Programs for the National
Cooperative Bank, a national financial institution dedicated to pro-
viding banking solutions for co-ops and their members. Mr. Condra
also serves on the board for Cooperation Works, a national network
of organizations focused on co-op development. Prior to joining the
private sector, Mr. Condra served as professional staff on the Sen-
ate Committee on Agriculture, Forestry, and Nutrition for Chair-
woman Blanche Lincoln.
Welcome, Mr. Condra.
Our third witness is Mr. John Abrams. Mr. Abrams is the found-
er, president, and CEO of South Mountain Company, a 45-year-old
integrated architecture, engineering, building, and renewable en-
ergy company committed to triple bottom-line businesses practices.
Located on Martha’s Vineyard, South Mountain has been a worker
cooperative for 32 years, was one of the first beneficial cooperatives
in Massachusetts, and is currently in transition to second genera-
tion leadership. Mr. Abrams is also the author of the book, Compa-
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nies We Keep: Employee Ownership and the Business of Commu-
nity and Place, which was published in 2008.
Welcome, Mr. Abrams.
I would now like to yield to our Ranking Member, Mr. Chabot,
to introduce our final witness.
Mr. CHABOT. Thank you, Madam Chair.
Our final witness will be Mark Gillming, who is the senior vice
president and secretary of Messer Construction Company, which is
headquartered in America’s greatest city, Cincinnati, Ohio. Messer
has multiple locations around the country, including in several
members’ districts or close to them on this Committee, Mr.
Burchett’s in Tennessee, and Mr. Bishop’s district in North Caro-
lina. Messer Construction went through an ESOP conversion back
in 1990 and is still prospering today. Mr. Gillming is a long-time
employee of Messer Construction, having started his career there
in 1985, 35 years ago. Coincidentally, the same year that I was
first elected to Cincinnati City Council. He currently runs all of
Messer Construction’s professional development operations and has
multiple degrees from the University of Cincinnati, including not
one, but two, distinguished alumni awards.
Mr. Gillming, we very much appreciate you being here today and
all the other witnesses as well.
I yield back.
Chairwoman VELÁZQUEZ. Thank you very much.
Mr. Goldstein, you are now recognized for 5 minutes.
STATEMENTS OF DANIEL GOLDSTEIN, PRESIDENT AND CEO,
FOLIENCE; R.L. CONDRA, VICE PRESIDENT OF ADVOCACY
AND GOVERNMENT PROGRAMS, NATIONAL COOPERATIVE
BANK; JOHN ABRAMS, CEO AND CO-OWNER, SOUTH MOUN-
TAIN COMPANY; MARK GILLMING, SENIOR VICE PRESIDENT,
MESSER CONSTRUCTION CO.
STATEMENT OF DANIEL GOLDSTEIN
Mr. GOLDSTEIN. Thank you, Chairwoman Velázquez, Ranking
Member Chabot, and members of the Committee.
I am Daniel Goldstein, CEO of Folience, a Cedar Rapids-based
company in business since 1884, and 100 percent owned by our em-
ployees since 2012.
I also represent the ESOP Association, a non-profit whose pur-
pose is to protect and grow employee stock ownership plans, or
ESOPs.
6.6 percent of the U.S. workforce has ownership in an ESOP.
That is more than 10.6 million employees. ESOP employees out-
number the workforce of the entire U.S. auto industry by more
than half a million. We outnumber the combined workforce of the
Federal and state government by 3 million.
ESOPs contribute substantially to our economy, and we believe
they hold a solution for many of the intractable issues facing our
economy.
As you know, one of the biggest challenges ahead is the looming
retirement in the next 10 years of baby boomers who own 2.5 mil-
lion small businesses. Known as the ‘‘Silver
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Tsunami,’’ it will be the largest transfer of business ownership in
the shortest period of time in our Nation’s history.
The businesses, and their employees face difficult futures if sup-
portive policies are not adopted. I have seen what can happen if a
succession plan is not made and the role employee ownership can
play in preventing catastrophe.
Let me tell the story of a typical small town. Sumner, Iowa, pop-
ulation 2,000, has one major private employer. Life Line
Emergency Vehicles designs and builds ambulances that provides
180 good-paying jobs. Ten years ago, the founder passed away leav-
ing control of Life Line to his 69-year-old widow. When I met her,
she was 75 and had no heirs prepared to take over the business.
Most in this situation face three choices: sell to private equity,
to a competitor, or close and sell off the parts.
Folience gave them another option—sell to their employees
through an ESOP. Folience’s ESOP purchased Life Line, and those
180 employees became owners of Life Line and every other busi-
ness in the Folience portfolio.
Despite the many well-known benefits of employee owned busi-
nesses—benefits, those seeking to launch ESOPs face multiple, un-
necessary obstacles, and I would like to focus on three.
The first is an absence of clear Federal regulatory guidance, par-
ticularly on business valuations. Second, a shortage of lending cap-
ital for ESOP formation or acquisitions. And, third, education.
There is low public and professional awareness about ESOPs.
Today, I ask Congress to task Federal agencies with solutions to
all three.
First, I submit that the biggest obstacle to forming and expand-
ing ESOPs is the chilling effect of the U.S. Department of Labor.
DOL has perpetuated an absence of formal regulatory guidance,
while simultaneously pursuing a litigious approach to oversight.
The effect has been a deep chill on the market. Every year, hun-
dreds of business owners attend educational events the ESOP Asso-
ciation hosts to learn about ESOPs. And once exposed to the lack
of clear
guidance, many turn away out of fear that some unknowable
misstep will invite never-ending DOL scrutiny.
Forty-five years after ESOPs were established with the passage
of ERISA, the Department of Labor has yet to finish its rulemaking
process. They started. They nearly finished in 1988. But they never
issued regulations. But here is the travesty. It is impossible to
prove how many American workers have lost the opportunity to be-
come employee-owners as a result of this chilling effect.
The solution can start very simply. Congress should require DOL
to define one thing: what constitutes adequate consideration when
an ESOP trustees values the price to be paid for a company. This
one simple piece of guidance could be a gamechanger for employee
ownership.
Second, to start addressing lending shortages, the SBA must
streamline lending for the ESOPs, as outlined in the Main Street
Employee Ownership Act. Unfortunately, in implementing the leg-
islation, the SBA excluded ESOP loans from the Preferred Lending
Program, instead continuing to require headquarters approval for
all ESOP loans.
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We ask that the SBA be unambiguously directed to include
ESOP loans in the Preferred Lending Program.
Third, the Main Street Act tasked the SBA with promoting
awareness of ESOPs and employee ownership. The ESOP Associa-
tion knows that some in the agency already take this task seri-
ously, but they are too few and they lack adequate support, struc-
ture, and resourcing.
Business owners must know the ESOP option exists and be able
to obtain useful, unbiased information. To that end, we ask that
the SBA be directed to resource a specific office, such as the Office
of Small Business Development Centers, with active public edu-
cation and information efforts. These three actions will provide a
clearer path to launching and expanding ESOPs.
Thank you for the privilege of sharing the testimony.
Chairwoman VELÁZQUEZ. Thank you, Mr. Goldstein.
Mr. Condra, you are now recognized for 5 minutes.
STATEMENT OF R.I. CONDRA
Mr. CONDRA. Thank you. Good morning, Chairwoman
Velázquez, Ranking Member Chabot, and members of the Com-
mittee. I am honored to discuss the benefits and challenges of em-
ployee-owned businesses. Thank you for bringing this topic out to
the light and providing a forum for discussion it so richly deserves.
Today, I will discuss how a prohibitive policy requirement by the
Small Business Administration is hindering the growth of the coop-
erative business sector. If this issue is resolved, lending institutions
like the one I work for will be able to make loans that will help
to grow small businesses, create quality jobs at increased wages,
and provide healthy food and grocery options for communities
throughout the country.
My employer, the National Cooperative Bank is a national com-
mercial bank headquartered in Arlington, Virginia. With $2.8 bil-
lion in total assets, NCB delivers banking and financial services
throughout the Nation to cooperative organizations complemented
by a focus on economic development in low-income communities.
A cooperative is a business that is organized, owned and gov-
erned by the people who use its products or services. Those people
are called member-owners, and they own the business. They have
a voice in its operations through a board of directors that members
elect, and the profits from the cooperative flow back to the mem-
ber-owners. Employee-owned cooperatives, also known as worker
cooperatives, give employees an ownership stake in the company in
which they work.
Cooperatives have evolved since the 1960’s when the SBA recog-
nized them as buying clubs. There are now over 40,000 coopera-
tives in the U.S., and the top 100 generated $222 billion in annual
revenue in 2018. Some notable cooperatives include REI, ACE
Hardware, Ocean Spray, Land O’Lakes, and Congressional Federal
Credit Union.
Since the Great Recession, worker cooperative numbers have
doubled, and have become a business option for young people,
women and minorities. According to the 2019 Worker Cooperative
Economic Census, 50 percent of owners in worker co-ops are Latino
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and African American, and 62 percent of women make up the ma-
jority of the workforce.
Municipalities have also recognized that co-ops are a viable busi-
ness option and have taken steps to promote the growth and devel-
opment of worker cooperatives in cities such as New York, Phila-
delphia, Madison, Minneapolis and Austin.
Over the past 40 years, my bank, NCB has provided loans of
more than $2 billion to cooperative businesses and independent re-
tailers including over $77 million to consumer-owned food co-ops.
Per our loan policies and guidelines, NCB does not require a per-
sonal guarantee for consumer and worker-owned co-op loans due to
the unique structure of our cooperative borrowers.
In contrast, the SBA requires a personal guarantee from anyone
who owns 20 percent or more of a business and will not guarantee
a loan under the program if there is no such individual. This agen-
cy requirement makes it impossible for cooperative businesses to
access the agency’s lending programs. For decades, the co-op sector
has asked the SBA to level the playing field for cooperatives to no
avail from the agency.
In 2018, Congress passed the Main Street Employee Ownership
Act that directed the SBA to recommend and implement practical
alternatives for cooperatives that will satisfy the agency’s loan
guarantee requirements.
We were greatly disappointed to learn the SBA did not provide
practical alternatives as the law required. Instead, the agency re-
lied on its existing requirements that continue to block cooperative
businesses from much needed access to capital.
Further, SBA’s recommendation regarding an existing business
to be sold and converted to an employee-owned cooperative would
create new barriers. The agency recommends that a selling busi-
ness owner provide a full, unlimited personal guarantee for the life
of the loan. Imagine a small business owner selling their business
to a buyer, but also having to put up their home as a guarantee
for the buyer’s own loan until it is paid off.
The SBA’s guarantee requirement is also contrary to industry
practice for cooperatives. As mentioned, my bank does not require
a personal guarantee, and CDFIs that specialize in co-op lending
do not require one. The Department of Agriculture’s Business and
Industry loan program does not require a personal guarantee for
loans to cooperatives.
In addition, the SBA has shown flexibility with respect to the
guarantee in similar situations in the past. Thus, the SBA does not
require a personal guarantee when a loan is made to an ESOP
business.
The SBA has stated that cooperatives can satisfy the require-
ment by providing an ‘‘entity guarantee’’ to be the guarantor of the
loan. We were recently approved by SBA using an ‘‘entity guar-
antee’’ for a food cooperative loan in Fredericksburg, Virginia. To
my knowledge, this will be the first food cooperative loan in the
history of the agency. While we are excited that SBA approved this
loan, we have strong concerns that the ‘‘entity guarantee’’ is not a
long term solution for cooperative businesses for the following rea-
sons:
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SBA is not prepared for an ‘‘entity guarantee’’ submission with
its application process; the borrower adds more debt to the loan
than is needed; the lender adds more risk to the loan than is need-
ed; and only wealthy communities with the ability to raise cash
will be able to use this process.
I am here today to discuss how the SBA’s taxpayer-funded loan
programs should be fair and available to everyone, including coop-
erative businesses.
I look forward to answering your questions. Thank you.
Chairwoman VELÁZQUEZ. Thank you.
Mr. Abrams, you are now recognized.
STATEMENT OF JOHN ABRAMS
Mr. ABRAMS. Ms. Velázquez, Mr. Chabot, members, thank you
so much for having us. It is an honor.
South Mountain, the company I founded nearly a half century
ago, is an integrated architecture, engineering, building, and solar
company. We do all the parts, from beginning to end. For 33 years
it has been a worker co-op. Nearly 2/3 of the 37 employees share
ownership today. We balance the triple bottom line of people, plan-
et, and profit—quality, performance, and mission are all more im-
portant to us than growth.
The company is built on humble beginnings. I had an older
friend and mentor who followed our work in the early days. One
day we were showing him a house in progress, and he said, ‘‘It is
beautiful work. It is artful.’’ And then he said, ‘‘Are you making
any money?’’ ‘‘No,’’ I chuckled. ‘‘We seem to lose money on every
project we do.’’ And he said, ‘‘Well, Abrams, you’ve got a unique
idea here. Subsidized housing for the rich.’’
And that bombshell inspired me to learn about business—what
it is, the impact it can have, and how to make fair profits—and
that pursuit has become a passion. Now we make subsidized hous-
ing for those who need it. We devote ourselves to service to each
other, to the communities we work in, to strengthening our local
economy.
In 1987, two long-time employees told me they preferred to spend
their careers at SMC rather than going off on their own, but they
needed more of a stake than an hourly wage. Not long after, I
agreed to restructure as a worker co-op, to make a system that
would welcome them, and other committed employees over time, to
ownership.
To be honest, at the time I thought this was more symbolic than
substantive. Nothing could have been further from the truth. Work-
er ownership has been more far meaningful and valuable than I
ever imagined. There is no question in my mind that it has been
a critical factor in our modest long-term success.
I believe that owning our work is as essential to a good life as
is owning our homes.
Former Treasury Secretary Laurence Summers once remarked,
‘‘In the history of the world, no one has ever washed a rented car.’’
Ownership is powerful. When employee-owners are making the de-
cisions, it is more likely that companies will stay rooted in place
and be positive forces in the community.
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Economist Richard Wolff says, ‘‘If our workplaces had been de-
mocratized long ago, would the workers have stopped raising their
own wages? Hardly. Would they have destroyed their own jobs by
moving production overseas? Doubt it. Would they have employed
technologies that pollute the local environment? No, they live there.
Would they have allowed some to earn astronomical salaries while
the rest got no raises? No way. Our economic history over the last
thirty years would have been radically improved if we had had a
different way of organizing our enterprises, with a more coopera-
tive community-focused method that is democratic at its core.’’
Growing the worker cooperative approach has the potential to
positively affect the economy, our democracy, the quality of work-
ing peoples’ lives, and I do not think it is a stretch to say that the
benefits of the democratic workplace may even aid and influence
the essential repair of our battered civic landscape. It could change,
in effect, the chemistry of our culture. If you spend your days work-
ing in an environment of collaboration, mutual respect, and shared
power, it is bound to spill over into other parts of your life—better
parenting, kinder relationships, more civic engagement.
Today, we are among the highest scoring of the 3,000+ certified
B Corps (among them are socially responsible icons like Patagonia,
Ben and Jerry’s, Seventh Generation), and we annually make the
B-Lab ‘‘Best for the World’’ list. During the past 7 years, six first-
generation employee-owners have retired who, collectively, rep-
resent 180 years of employment. Six people, 180 years. That kind
of stability is rare in business today.
We are deeply engaged in transitioning to our next iteration. As
a new group of owners take the reins, I am grateful that we will
only have to change leadership, having dealt with the ownership
part many years ago.
We often assist companies transitioning to employee ownership.
It is not uncomplicated, and all companies making this move need
technical and legal assistance. The need is great. The Main Street
Employee Ownership Act of 2018 was a big step forward, but there
is far more to do.
The value and benefits of employee ownership continue to fly
under the radar, and you cannot take this important step without
knowing the option exists and understanding what it means. So
perhaps the greatest need is extensive education and publicity. The
stories of employee ownership successes need to be shared and cele-
brated. Employee ownership ‘‘ambassadors’’ should be funded to
visit companies considering transitions, to teach, to train, to advise,
to inspire. Widespread technical assistance should be made avail-
able. Employee ownership should be the number one business suc-
cession planning option. But it is not. I hope this Committee will
build on the great work that it has done so far, and I am grateful
for the opportunity to make this request.
I would be happy to answer questions. Thank you.
Chairwoman VELÁZQUEZ. Thank you, Mr. Abrams.
Mr. Gillming, you are now recognized.
STATEMENT OF MARK GILLMING
Mr. GILLMING. Chairwoman Velázquez, Ranking Member
Chabot, and distinguished members of the Committee, thank you
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for inviting me to testify before you today to share my story of as
our retired CEO phrased it, ‘‘inclusive capitalism,’’ and the impact
it has had upon hundreds of my fellow employees at Messer Con-
struction. Thank you for holding this hearing to learn more about
ESOPs and the legislation that can encourage more small busi-
nesses to become employee owned.
My name is Mark Gillming. When I began working at Messer
Construction, it was a Cincinnati-based, medium-size, family-
owned construction company with a long history and a good reputa-
tion. But, like most companies in construction, it had little in the
way of employee benefits. By 1990 company-funded retirement ben-
efits totaled only $1.5 million on behalf of about 99 participants.
In 1988, the last son of the company founder died, and we found
ourselves with an uncertain future. The grandchildren of the
founder wanted access to their wealth, and having no connection
with the employees, were not committed to maintaining employ-
ment at the company. In 1990, the Messer employees were able to
buy their future from the Messer family using the ESOP structure.
I was one of the employees that participated in that purchase, and
we could not have purchased the company if not for the important
tax advantages that the ESOP model afforded us.
Our country’s investment in ESOPs allowed 99 Messer employ-
ees to purchase their future, and the engagement that opportunity
created has resulted in growth. Today, operating from 10 regional
offices, Messer performs more than a billion dollars in construction
annually.
And, here is the measure of how that change our ESOP brought
to our retirement savings. Messer now provides quality jobs and
predictable retirement for over 1,200 individuals and has company-
funded retirement assets for those employees totaling more than
$400 million.
Through our engagement with the Employee-owned S Corpora-
tions of America (ESCA), we have come to know of hundreds of
companies with stories similar to ours, and the data from ESCA’s
quality research shows that ESOP companies are more robust,
more sustainable, and provide higher levels of diversified retire-
ment benefits than non-ESOP companies. The Messer ESOP is in
place and working well for us. However, Messer manages a vendor
supply chain of small local subcontractors who are increasingly at
risk from forces both external and internal. For that reason,
Messer supports ESCA’s work to promote bipartisan legislation,
H.R. 2258, that would encourage more employee ownership by pro-
viding incentives to S Corporation business owners to sell to an
ESOP when they are looking to transition out of the business. This
will allow more American workers to build meaningful retirement
savings that those of us at Messer have realized through employee
ownership.
It was more than 20 years ago that Congress passed legislation
creating S ESOPs, and in addition to what I have shared with you
about Messer, data shared by ESCA continues to show that S
ESOPs are a remarkable success story from young workers to retir-
ees.
Just a few highlights from recent surveys that Committee mem-
bers will find of interest:
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Close to 90 percent of ESOP retirees said their savings and
ESOP benefits are enough to meet their retirement needs. Less
than half of non-ESOP retirees said the same.
56 percent of millennial workers at ESOP companies said they
had at least 6 months’ salary saved for retirement, while 66 per-
cent of their non-ESOP counterparts said they had no savings at
all. The opportunity to become an employee-owner has helped
Messer Construction recruit and retain millennial workers in a
tight labor market. These individuals share the vision of working
as an owner and not just an employee and embrace the challenges
and opportunities that come with being an employee owner.
Messer is a clear example of the power of inclusive capitalism
that results from supporting S ESOPs. I invite you to visit us or
an employee-owned company in your district or state so you can see
firsthand the pride employee-owners take in their work and the
confidence that employee-owners have in their future.
Ms. Chairwoman and Committee members, I thank you for this
opportunity to address the Committee and share Messer’s story,
and for your consideration of legislation that will allow more hard-
working Americans to share in the American dream at work.
Chairwoman VELÁZQUEZ. Thank you, Mr. Gillming, and thank
you all for the insightful information and stories that you have
shared with us.
I will now recognize myself for 5 minutes.
Mr. Goldstein, the Main Street Employee Ownership Act now al-
lows the 7(a) preferred lenders to process ESOP loans under dele-
gated authority streamlining the process for small firms. Unfortu-
nately, the proposed rule implementing the law says those loan
cannot be processed under delegated authority. What is the impact
to the ESOP community with SBA taking this position and contra-
dicting the clear language of the statute?
Mr. GOLDSTEIN. Thank you.
While Folience has not utilized the SBA’s 7(a) loans, and I prob-
ably would not given the delay in how long it takes to get them
approved, I can speak to the importance of timing in completing
ESOP deals. There are two principles that I have learned from my
experience. The first is that time is the enemy of all deals, and the
second is that accessing capital is the greatest bottleneck in timing.
So when Folience acquired Cimarron Trailers in 2018, we had a
12-day delay due to a financing issue, and just 12 days called into
question changes in inventory, work in progress, working capital,
finished goods delivered, and a variety of other criteria that mean
that the adequate consideration, the fair price of the deal had to
be recalculated. And as you look at moving the local approval of
SBA loans to preferred lending providers who have local knowledge
of the companies, they will have more direct knowledge to make
more timely decisions which will get more funding to create more
ESOPs.
Chairwoman VELÁZQUEZ. Thank you.
Mr. Condra, how many businesses that you work with have been
good candidates for the 7(a) loan program but could not get one be-
cause of the personal guaranty requirement?
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Mr. CONDRA. Thank you for that question. And some of my an-
swers today will refer to food cooperatives, like Park Slope in your
district in Brooklyn.
Chairwoman VELÁZQUEZ. Yes.
Mr. CONDRA. Because the food co-ops and worker co-ops are in
the same boat with SBA. And food co-ops are a more mature sector
at this point. But we get multiple inquiries every month from co-
operatives. There is a nonprofit called the Food Cooperative Initia-
tive that provides technical assistance through startup food coops.
There is currently 125 in different phases, and in employee-owned,
in the worker co-op sector, 25 new worker co-ops are created every
year. And all that being said, we do not know what the need is,
the total need out there is because it is common knowledge among
the industry that you cannot access the SBA programs. And also,
additionally, a letter was sent to you in December from the Village
of Williamsburg outside of Buffalo, New York. They were counting
on SBA for this alternate requirement for the guarantee and they
sent you a letter saying that now they are hindered from moving
forward because there is not an option for them.
Chairwoman VELÁZQUEZ. So I know that in the USDA Busi-
ness and Industry loan program they offer a waiver from the per-
sonal guarantee requirement for co-ops, and that is a $25 million
max loan program. So do you think a waiver provision like the one
the USDA has would work at the SBA?
Mr. CONDRA. I think it is a good option. I need to get more
knowledge about that waiver process to learn more but that is just
another example of thinking outside the box of how SBA could do
this along with the other alternatives that the sectors rec-
ommended. And they said no to all of that. And I just want to re-
mind you as well that SBA met with their counterparts at USDA
to talk about alternatives and USDA recommended a number of
those and the agency said no to those as well.
Chairwoman VELÁZQUEZ. Okay. Thank you.
Mr. CONDRA. Yes.
Chairwoman VELÁZQUEZ. Mr. Abrams, well, the new adminis-
trator that was recently confirmed is coming before this Committee
at the end of February. Rest assured that we are going to ask the
question about this.
Mr. CONDRA. Thank you.
Chairwoman VELÁZQUEZ. Mr. Abrams, I know that in a co-op,
employee-owners have a seat at the table when important business
decisions are being made. Can you tell us how this process en-
hances employee morale and drives strong wages and benefits for
employee-owners?
Mr. ABRAMS. I think it is at the heart of——
Chairwoman VELÁZQUEZ. Do you have your mic on? Is it on?
Mr. ABRAMS. I believe so.
Chairwoman VELÁZQUEZ. Okay.
Mr. ABRAMS. Can you hear me?
Chairwoman VELÁZQUEZ. Yes.
Mr. ABRAMS. Okay.
I really think it is at the heart of what makes these businesses
successful, that the employees know that they have a seat at the
table, that they know that their voice is heard loud and clear, and
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that in the end they are going to make the decisions about policy.
And I think when the people who are making the decisions bear
the burden of the consequences of those decisions but also benefit
from the rewards of those decisions, we just get better decisions.
Chairwoman VELÁZQUEZ. Thank you.
My time is up. So now I recognize the Ranking Member, Mr.
Chabot.
Mr. CHABOT. Thank you, Madam Chair.
Mr. Gillming, I will go with you first.
Your company was being sold or transitioning from the family
that owned it and 99 employees purchased it. And obviously it has
gone very well. What are a couple advantages, benefits would you
say versus any downsides?
Mr. GILLMING. I do not see any downsides.
Mr. CHABOT. The mic.
Mr. GILLMING. I do not see any downsides. It has been a great
experience for us. But what it has meant is we became employee
owners and there were 99 of us when we started out. We were all
in this——
Mr. CHABOT. Was there any magic in that number at the time
or anything?
Mr. GILLMING. No, it just——
Mr. CHABOT. It just seems like such an interesting number, 99.
Not 100, not 98, but 99.
Mr. GILLMING. It is just where we were.
But what it has meant is that it changed some, you know, we
had a great culture to begin with but it made it even better be-
cause I no longer was worried about, well, I want to succeed so I
want to see one of my coworkers not do so well. I am interested
in seeing them succeed because a rising tide raises all boats. And
the culture just got better. And it becomes cohesive. And when you
are an employee-owner and making decisions as an employee-
owner, you know, those small decisions become big decisions and
you are making them. How we treat our owners, how we treat our
subcontractors is so important.
Mr. CHABOT. I remember at a previous hearing we had one of
the witnesses that talked about that they had gone to an ESOP,
and it may have even been Messer, I am not sure, but they talked
about things like some employees in the past may have walked off
with tools or office supplies or things like that. Other employees,
hey, that is my stuff you are doing. And they would amongst them-
selves stop bad things from happening. Is that accurate?
Mr. GILLMING. Good observation. We had two mid-year career
hires that came in, and about 6 months after they had been there
they were talking. They said, do you know what is different? They
turn the lights out when they leave the conference room.
Mr. CHABOT. Excellent. Excellent.
Mr. Abrams, I will go to you next.
In your testimony you mentioned that your decision to restruc-
ture as a worker cooperative was really critical in South Mountain
Company’s success. How did it contribute to the success of your
company in particular?
Mr. ABRAMS. Well, for one thing, I think the origin——
Mr. CHABOT. I am not sure if the mic is on.
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Mr. ABRAMS. Sorry about that.
Mr. CHABOT. That is all right.
Mr. ABRAMS. The origin of that decision was inspired by em-
ployees coming and saying this is where we want to be. But, the
usual path is to achieve some level of competence and then go out
and start businesses in your own. The fact that they wanted to be
there meant that we needed to have a structure that would keep
them there. And that was repeated time after time.
So first of all, I see a level of dedication that I do not see in other
businesses, and this fact that people want to make their careers
there and stay till the end, till retirement.
Mr. CHABOT. Thank you very much.
Mr. Condra, could you walk us through with what a small busi-
ness would experience if they approached your office to inquire
about becoming an employee-owned ESOP?
Mr. CONDRA. Let’s give an example, a landscaping worker co-
op. If it was in a certain state, we would immediately direct them
to cooperative development center, and that center would provide
the technical assistance and the needs for how they do that. That
co-op would then, if they were moving forward, create a planning
committee. They would create a business plan. They would form a
board. And they would go through the steps just like any other
business would. And then at the end of the day they would provide
an application to our bank. One thing to note on that is USDA pro-
vides technical assistance grants to these development centers in
rural areas. So if you are in rural Ohio, you can go to a develop-
ment center and get some assistance. If you are in Cincinnati
wanting to form a worker co-op, there is not any Federal technical
assistance to provide that.
Mr. CHABOT. Thank you very much.
Mr. Goldstein, before I run out of time here, in your written tes-
timony you had described a chilling effect caused by ‘‘policy of regu-
lation by litigation by the Department of Labor.’’ Could you tell us
in a little more detail what small businesses are going through
with the Department of Labor with respect to what you were talk-
ing about?
Mr. GOLDSTEIN. Yes, absolutely.
The most important element in an ESOP formation or acquisition
is price. And adequate consideration is the process by which the
trustee determines the fair price to be paid for that transaction.
The trustee is representing the buyers; the buyers being the em-
ployees. For over 45 years, the DOL has refused to define what this
process is and over the last 10 years there has been aggressive liti-
gation which has scrutinized and challenged ESOP valuations. The
chilling effect is that because there is no clear guideline on this and
there is the fear of litigation that there are a lot of transactions
that otherwise would not happen. There is evidence that you can
see with the SEC of issuing robust guidelines for public companies
that are being bought by other public companies or by private com-
panies and the process is evaluated by the SEC. A letter of no ac-
tion is given if that process is determined to have been followed.
So all we are asking is that the DOL issue guidelines that ade-
quately define this process, the adequate consideration.
Mr. CHABOT. Thank you very much.
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I appreciate all the witnesses, and my time is expired, Madam
Chair.
Chairwoman VELÁZQUEZ. The gentleman’s time has expired.
And now we recognize the Chairman of the Subcommittee on
Contracting and Infrastructure, from Maine, Mr. Golden.
Mr. GOLDEN. Thank you, Madam Chair.
Mr. Goldstein, I think following up on that a little bit, could you
try and walk the Committee through how an ESOP trustee might
currently determine the value of ESOP stock?
Mr. GOLDSTEIN. Sure. Absolutely.
The ESOP trustee uses a valuation firm. They may look at other
comparables with small private companies. There is not a good
amount of information so they may have to extrapolate the infor-
mation from public companies. They may have to look at what is
the best next comparable that is available from transactions that
are known but that is not from all transactions. There is no check-
list of items to examine. There is no suggested metrics to use.
There is no system of comparison. The DOL has used litigation
which some say has set precedent but that precedent can be very
individual to the actual transactions. So the metrics used for ac-
quiring a manufacturing company will be very different than those
used acquiring a technology or service company.
Mr. GOLDEN. Thank you.
Do you have a preference or some input about how you think the
Department of Labor should define the term ‘‘adequate consider-
ation’’ in this context?
Mr. GOLDSTEIN. Yes. Again, if they were to give clear guide-
lines that unequivocally can be followed by a trustee to ensure that
a process is going to be followed, it eliminates that fear that once
a transaction has been done it will be under scrutiny that can be
costly and take a lot of time and could be undone years later. And
that is really what is causing a lot of these transactions to not hap-
pen. The employees of the companies that do not become employee
owned are the ones that lose because the business owners will find
another buyer. They will find private equity or strategic. It is those
employees that are losing because there is not an adequate consid-
eration regulation that is clearly identified.
Mr. GOLDEN. So you just want clarity and consistency.
Mr. Abrams, because you assist companies that transition to em-
ployee ownership, I know you know a lot about some of the tech-
nical and legal assistance that is necessary in the process. And I
wanted to ask what more might be done to help promote companies
transitioning to employee ownership. What kind of assistance to
people generally need to pull this off successfully?
Mr. ABRAMS. That kind of publicity would be welcome and
could be effective. In terms of technical assistance for making the
conversion, the most important thing is that people know that
there are companies and consultants that are doing this work.
There are accountants that are well-versed in co-ops and others,
mostly, they are not. So to know who to go to, what attorneys to
go to, all of this information is important. But I think even more
important, at the beginning, employees often feel like this is an
owner leaving and they need to understand that it can be inclusive
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and the owner can stay and work with them through the transi-
tion.
Mr. GOLDEN. Thank you.
Just going back to Mr. Goldstein, you mentioned in your testi-
mony that you thought small business development centers might
be a good place, a focal point for educating people about this par-
ticular option and maybe helping people through the transition. I
cannot remember if it was you specifically or someone else who also
mentioned about small business development centers, that some re-
gions are doing this kind of work, others are not. I was not sure
if that was anecdotal or if anyone had any feedback about that.
Mr. GOLDSTEIN. Yes. What I have seen is that it is anecdotal.
There are different regions of the company that may have a more
proactive approach to giving information about employee owner-
ship. And what is most important is that any business owner that
is looking at this transition in the ‘‘Silver Tsunami,’’ the 2.5 million
small businesses that need to change ownership in the next decade
or two, that they have access to that information, unbiased, and
that they are not going to be misled by professional service pro-
viders that are going to steer them away from that. They need to
see that that is an option, which is going to keep companies and
jobs in communities.
Mr. GOLDEN. Thank you very much.
Madam Chair, I yield back.
Chairwoman VELÁZQUEZ. The gentleman yields back.
And now we recognize the gentleman from Ohio, Mr. Balderson,
Ranking Member of the Subcommittee on Innovation and Work-
force Development, for 5 minutes.
Mr. BALDERSON. Thank you very much, Madam Chair. And
good afternoon, panel. I thank you all very much also for taking
the time to be here today.
Throughout this hearing we have heard numerous times about
the benefits that exist in employee-owned businesses. Some of
these benefits include higher wages, better working conditions, and
more flexible working hours. However, one aspect that is vital to
employees and employers alike is health care. Would you all please
elaborate, and you can start with Mr. Goldstein and just go down
the line there, on some of the challenges of this healthcare space,
and are the associated health plans part of the solution?
Mr. GOLDSTEIN. Certainly. ESOPs do address income inequal-
ity through competitive pay and benefits, and we offer both to our
employees. Certainly, increasing costs can be a challenge to any
business. I would like to stress that the other benefit is the retire-
ment accumulation which ESOPs address, which is wealth inequal-
ity. And it is important to point out that the difference between in-
come inequality and wealth inequality is that income inequality
will get the employee and their family through their next pay pe-
riod; wealth inequality, if you address that, gets them and their
family through a funded retirement. So it is very important that
they have the benefits which we offer and also that they are accu-
mulating these retirement benefits.
Mr. BALDERSON. Okay. If you all could just be more specific on
the healthcare piece of it. I am trying to dial in on the associated
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healthcare plans and some of the tools that are out there, whether
it is the HSAs, the health savings accounts.
Mr. GOLDSTEIN. Yes. So we do offer the high-deductible plans
with HSA. Of course, it is important to educate an employee so
that they are contributing to the HAS as they take those high-de-
ductible plans. We use wellness programming to improve the
wellness of the employees so that it is proactive and not just reac-
tive. We do lots of wellness challenges. That is an important part
of taking care of our employee population.
Mr. CONDRA. So I am discussing worker cooperatives, which are
separate from the ESOPs. Examples for worker co-ops in my mind
are construction, retail, custodial, daycare, hourly paid wages for
the smaller ones. So it would be up to the co-op if they were able
to bring in their own insurance or that nature. There are larger
worker cooperatives such as Equal Exchange and Home Care Asso-
ciates that have over 1,700 owners which they would have their
own healthcare plans.
Mr. BALDERSON. Thank you.
Mr. ABRAMS. Our employee-owners feel that health insurance is
absolutely essential for them and their families, so we provide 100
percent coverage of everything imaginable, all deductibles paid. It
is a high priority. Meanwhile, the Amicus co-op, which is a pur-
chasing co-op of 50 solar companies nationwide, is working to bring
insurance to lower those costs because most of their members are
worker-owned and they are looking for ways to provide these bene-
fits at lower cost.
Mr. BALDERSON. Thank you.
Mr. GILLMING. We provide healthcare benefits for our employ-
ees as well. The employees pay a portion of it. The company pays
a portion of it. But because we are employee-owners, there is real-
ization that this falls right to the bottom line and expenses are im-
portant. So we have the benefit programs, you know, the wellness
programs trying to reduce it and I am one of the healthcare trust-
ees for our company. So I am aware of what we do every year of
going back out to the market to see what we can do to provide the
best healthcare for our employee owners that we can at the best
pricing.
Mr. BALDERSON. Okay.
Mr. GILLMING. So going to the high-deductible plan was one of
those ways to help provide that as well.
Mr. BALDERSON. All right. Thank you all very much.
Madam Chair, I will yield back my remaining time. Thank you.
Chairwoman VELÁZQUEZ. Thank you. The gentleman yields
back.
And now we recognize the gentleman from North Carolina, Mr.
Bishop.
Mr. BISHOP. Thank you, Madam Chairman. Thank you, panel.
And Mr. Gillming, in particular, I represent Charlotte, part of
Charlotte, which is one of Messer’s expansion markets. And I am
curious whether ESOP ownership impacted your decision-making
concerning expanding to markets like Charlotte.
Mr. GILLMING. It absolutely has. As we continue to grow, we
are not growing because we want to do more work. We are growing
to provide additional opportunities for individuals within Messer to
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continue to grow. It does not have to be a narrow pyramid where
I have to retire for someone to take my place.
I was asked in 2002 to go move to Louisville to run the Louisville
region. When I left the Cincinnati region, someone had to take my
place. In 2010, I was promoted again to cover multiple regions.
Someone had to take my place, so we do it for the growth of our
employees and we look for very active, vibrant communities be-
cause our people become part of the community. So that is obvi-
ously one of the reasons we are in Charlotte.
Mr. BISHOP. I am grateful for that and I congratulate Messer
on your success, all your employees.
Picking up on Mr. Balderson’s point, earlier in this Congress I
introduced H.R. 5224, the Increasing Health Coverage through
HRAs Act. And that legislation would codify, that is, give perma-
nent effect in statutory law to the new IRS, DOL, HHS rule that
allows employees to use health reimbursement arrangements fund-
ed by employers to purchase individual market coverage and cor-
respondingly allows employers to fund those accounts and deduct
the amounts as pay but it does not increase taxable pay to the em-
ployees. And then employees can obtain and maintain their own
coverage that way. Early estimates are that this option will in-
crease by 800,000 the number of Americans with health insurance
coverage.
And so my first question for the entire panel is, do you think the
availability of new benefits, flexibility like that, puts smaller com-
panies, especially employee-owned forms of businesses in a better
position to compete for top talent? Anybody who wishes to volun-
teer for that?
Mr. GOLDSTEIN. As was previously said, we do go out to the
marketplace every year and look at what are the available options,
pricing, looking at ensuring that we do not disadvantage any one
population as we have different companies that we bring together.
And so absolutely increasing the options is always advantages as
we look at how to best provide benefits at the most cost-effective
method to our employees.
Mr. BISHOP. Thank you very much.
Madam Chairman, I yield back.
Chairwoman VELÁZQUEZ. The gentleman yields back.
And now we recognize Mr. Spano, from Florida, for 5 minutes.
Mr. SPANO. Thank you, Madam Chair. And thank you all for
being here today. Thank you for your testimony. Appreciate it very
much.
As many of my colleagues know, I am personally familiar with
many of the challenges that small business owners face. Before
coming to Congress, I owned my own small business for 13 years.
In the entire time that I owned that business I used an employee-
owned model. I found that by giving employees stake in the busi-
ness, it not only allowed them to feel more invested in the busi-
ness, but it motivated them to succeed. They had skin in the game,
so to speak. But it also gave them a taste of what it was like to
be entrepeneurs.
One of the most daunting aspects of small business ownership is
getting started. You see so many businesses fail. And I think
entrepeneurs take enormous risk in their business and often with
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little experience when they first start. So the employee-owned
model can correct this problem in my opinion because it allows peo-
ple to develop the skills of business ownership with substantially
less risk essentially than making a go of it on their own. It better
equips these folk to start businesses with that knowledge.
Some of the most rewarding moments in my experience as a
business owner is to see some of the folks that have been owners
in my business then step out and start their own business. I have
enjoyed that on several occasions. But, so I strongly believe that
that employee-centered model can really make for better businesses
and more productive employees.
One theme that I have been noticing is that because employees
are directly involved in ownership decisions of the business, that
organizations tend to make decisions that benefit the employees,
which makes sense. The question I have, however, does this impair
a business potentially from making tough decisions sometimes that
may be necessary for the health and growth of the business? For
instance, if you have a market that is dynamic and changing rap-
idly and there need to be quick changes, potentially downsizing and
so forth, how do you get to the point where you get employees who
are, by nature, self-interested to come together and make a deci-
sion?
And I will just open the floor to anybody who wants to answer
that.
Mr. ABRAMS. In 2008, in response to the financial crisis, we set
out six layers of actions and the last on the list was actual layoffs.
We never got there, fortunately. But I will never forget when we
did get to the point where we decided that we would have a 20 per-
cent across the board reduction in pay, and at the end of that com-
pany meeting a number of people came up to me and thanked me.
And I said, ‘‘Wait a sec. Your pay just got reduced by 20 percent.’’
And they said, ‘‘So did yours, and you lost more than I did.’’ And
they were just in it together. So that is a pretty tough business de-
cision to make. And everybody was on board.
Mr. SPANO. Would anybody else like to offer an answer to that
question?
Mr. GOLDSTEIN. I cannot speak to the start of our business be-
cause that was in 1884; however, I can tell you that in 2016 when
I was brought in, it was with the realization that while we had a
130-year-old profitable newspaper that was still independent, if we
are going to be around for the next 130 years we had better diver-
sify our revenue base. And that is why we went through building
an employee-owned platform that brings transition of other private
companies into our company. And today, we are 570 employees,
two-thirds in manufacturing and one-third in media. And there are
plenty of difficult decisions and allocation of resources, capital,
staffing that go along the way in building that.
Mr. CONDRA. I would say on the worker co-op front, we have
seen this since the Great Recession, is that young people are want-
ing to start their own businesses. Some do not want to work for a
corporation. They want to own their own business and they are
happy to share that. Especially with conversions, you know, the
worker co-op model is not for everyone. Some people want to go to
work, work 8 hours and go home. They do not want the responsi-
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bility of making the decisions or they stress on the pressure. But
some people, it is natural for them and those are the ones that
prosper.
Mr. GILLMING. The only thing I would add is, you know, when
the recession hit, obviously, it hit construction really hard. We did
the same thing. We all came together and we knew we were in it
together. But the other thing within our company is the realization
that good ideas come from people. They do not come from titles. So
a lot of what we do and continue to advance ways to build build-
ings for our owners and deliver them, quality projects at quicker
schedules come from the ideas. And it may be somebody that just
started with us last year.
Mr. SPANO. Thank you.
I yield back, Madam Chair.
Chairwoman VELÁZQUEZ. The gentleman yields back.
And now we recognize the gentleman from Tennessee, Mr.
Burchett, for 5 minutes.
Mr. BURCHETT. Chairlady, I hope I did not cut in front of one
of the other members down there. Did I do that? Now we are good?
Okay, great. I do not want that to be reflected in anything I do in
this bipartisan that might hurt me in the re-election bid. So I just
want to clear the air with that.
Thank you all for being here. And thank you, Madam Chair, for
always being courteous to me.
Mr. Gillming, is that how you say your name?
Mr. GILLMING. Yes.
Mr. BURCHETT. Messer Construction, of course, has a big oper-
ation there in Knoxville in my area and they do quality work. And
thank you for being here, brother.
As an employee-owned company, what do you think the biggest
challenge is that faces Messer Construction?
Mr. GILLMING. The biggest challenge that we face is that Con-
gress will change the laws that they created in 1998 that allowed
for S ESOPs, because that allows us to continue to build towards
our retirement and all of us working together and knowing that
when we get up every morning and go to work, we are working for
ourselves and we are building for the future for not only us but for
our families.
Mr. BURCHETT. Yes. I am kind of a gearhead and I visited a
place called Jasper Motors and they have a little operation in
Knoxville. I was at a radio station and I said, I am going to go
down there and check those boys out. And sure enough, they were
one of you all, an ESOP. How do you say it, ESOP, ESOP?
Mr. GILLMING. ESOP.
Mr. BURCHETT. Anyway, they educated me pretty quick on
that. It is always good to talk to folks that actually work for a liv-
ing. Not that we up here do not do any work but the reality is we
do not.
You said Messer’s supply chain of local contractors earlier, you
said that they were facing some numerous challenges. Do you think
that the subcontractors and subcontractors across the country
could benefit from an employee-ownership model? And what do you
think that would look like?
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Mr. GILLMING. Well, I absolutely do. And we are seeing that
happening. There is a firm in Cincinnati, a long-time HVAC me-
chanical contracting firm that has just gone through the transition
at Peck, Hannaford and Briggs and it is time for the third genera-
tion now to move out. But what happens then to the employees?
So they had the foresight to say there is a structure here and our
retired CEO helped consult with them about some of the ways to
help do that. And the options that are there. But it allowed that
company now to continue on and for all of their employees to still
have employment.
Mr. BURCHETT. Very good. And I will give the rest of you all
some face time because I realize your wives and/or sons and daugh-
ters are watching you all right now.
So, what do you see Congress can do to further help support em-
ployee ownership?
We can just go down the line. And I have got 2 minutes and 23
seconds, so you all divide it up amongst yourselves.
Mr. GOLDSTEIN. I will be quick. Thank you first of all for point-
ing out that this is bipartisan, and so hopefully these changes can
be made.
I will go back to if this Committee could bring up the issue of
adequate consideration. The greatest challenge facing the forma-
tion of new ESOPs and acquisition of private companies to transi-
tion them to employee ownership, which is what Folience is doing,
is this issue of not having a clear definition of adequate consider-
ation. So if you could bring that to the Department of Labor,
please.
Mr. BURCHETT. I believe you just did, but we will. Thank you.
Mr. CONDRA. Congressman, my answer, and it will be to this
Committee, is access to capital. If a group wants to start a worker
co-op in rural Tennessee, they go to their local bank. The bank
sends it to USDA and gets a loan guarantee and they are off to the
races. If that same group wants to start a worker co-op in Knox-
ville, they go to their local bank, same thing, everything, SBA de-
nies that application due to the personal guarantee requirement.
So it is access to capital at this point.
Mr. BURCHETT. All right.
Mr. ABRAMS. My answer would be that very few business own-
ers know that a worker co-op is a viable entity of choice. More peo-
ple need to know.
Mr. BURCHETT. Let me go back real quick. Guy in the middle
right here, I am sorry, I am not looking at the names, here.
Do you think the banks want to do that business or do you think
they are coming up here and doing the old side step and saying,
oh, you know, do not allow them to do that, brother? Oh, we cannot
do it. It is those bureaucrats in Washington.
Mr. CONDRA. No. There is not a process at SBA to provide a
cooperative loan. The banks want to do this. I mean, this is what
we specialize in. And it is just not us. It is other national interests.
Mr. BURCHETT. Thank you all so much.
Chairlady, as always, this is a very bipartisan Committee, and
actually, it is one of the few Committees where I think something
is actually getting done up here.
Chairwoman VELÁZQUEZ. Thank you.
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Mr. BURCHETT. So thank you, ma’am, for your work. And ap-
preciate you all coming out.
Chairwoman VELÁZQUEZ. The gentleman yields back.
And now we recognize the gentleman from Minnesota, Mr.
Stauber, Ranking Member of the Subcommittee on Contracting and
Infrastructure for 5 minutes.
Mr. STAUBER. I thank you, Madam Chair. And thanks for your
testimony.
I, too, am a small business owner with my brothers. This is our
30th year. The ups and downs of small business. And for me, you
know, my colleague just asked, like, what can we do? It is critically
important that we take care of our small businesses in this coun-
try. They are the engine of our economy and I say you have never
been a small business until you have had to reach into your back
pocket and pay for something unexpected to capital or what have
you like my brothers and I have. It is not fun. It is not easy. So
I think the Committee members recognize the importance of small
business.
Mr. Abrams, did you talk about adequate consideration? Would
you define that to me? Or maybe Mr. Goldstein, you said that.
Okay. Would you define that?
Mr. GOLDSTEIN. Yes, absolutely.
Adequate consideration is the process by which a trustee deter-
mines a fair price in a transaction. So you have a seller and a
buyer. They have to agree on price. The buyers, the employees
being represented by the trustee. And the problem is that a lot of
transactions are not being done because there is not a clear defini-
tion of that process. And so sellers and trustees are too worried to
get into that transaction, whether it will be tied up in litigation
and scrutiny and potentially unwound years after.
Mr. STAUBER. Well, I am going to publicly ask you to help not
only this Committee but me, personally. I would like to connect
with you afterward with my staff assistant because I want to get
down to that because that appears to be a major problem con-
cerning in the ability to make the transaction. The bottom line is
the best legislation comes from you folks, and to hear this in the
Small Business, and I have only been here 13 months, but some
of the ideas that are coming from our small business men and
women are unbelievable and they seem to be so common sense.
And so as I read your notes, each of your notes before this, I just
want to tell you, number one, thanks for coming up and testifying.
And we are here, and should be here, to make sure that Main
Street America, and as I say, Main Street Minnesota, succeeds. Be-
cause the engine of our economy.
I really do not have any other questions other than that, but
thank you for your attendance and your testimony.
Chairwoman VELÁZQUEZ. The gentleman yields back.
And I am going to recognize myself for 5 myself. If any other
members to wishes to ask questions you are welcome.
Mr. Condra, we hear you on the issue of access to capital and the
problem that we have at this point with SBA’s interpretation, but
we are going to tackle that issue.
My other question is that part of the Main Street Employee
Ownership Act directed the SBA to provide outreach and edu-
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cational materials to participating lenders. It also directed SBA to
establish a Small Business Employee Ownership and Cooperative
Promotion program. As a lender on the ground, can you give us an
update on whether you have seen any of these provisions being im-
plemented?
Mr. CONDRA. We have had zero communications on the cre-
ationist program. We have heard indirectly that SBA just started
implementing it in October with the 900+ SBDCs that they were
now required to promote the cooperative model and training and
everything. It is a little bit frustrating because the co-op organiza-
tions and development centers throughout the country have al-
ready done a lot of this work with the materials, the resources.
They could be advisors on this. And for us not to know anything
about it, I am afraid the SBDCs are going to start recreating the
wheel. And also, they will be duplicating efforts. And the fact is
that there has been a lack of communication. So when the adminis-
trator comes to see you, you might want to suggest that they com-
municate a little bit better with the co-op sector.
Chairwoman VELÁZQUEZ. Sure. And today, I am holding a
roundtable with the SBDCs Network across the country, so I will
be raising this issue with them.
Mr. CONDRA. This program is one of the biggest accomplish-
ments of the legislation. Now we have 900 centers promoting the
cooperative model. I mean, it is a huge thing.
Chairwoman VELÁZQUEZ. It is important that we get it right.
And it is important for the Small Business Administration to un-
derstand the role that they could play.
Mr. CONDRA. Absolutely.
Chairwoman VELÁZQUEZ. So Mr. Goldstein, I understand your
company began acquiring other companies in the media industry,
and so my question to you is, how have employees at the companies
that you acquired reacted to learning that they are now employee-
owners of the company?
Mr. GOLDSTEIN. Absolutely. And just a correction. We are ac-
quiring companies that are not in media so that we are now in
manufacturing.
So two of my favorite days in my career were getting up in front
of Life Line Emergency Vehicles and Cimarron Trailers and letting
them know that, yes, their company has been sold, but now they
become employee-owners. And something that is very important is
that we give each of our employee-owners a license to act. And I
can pass these out afterwards. There is literally a card that people
hold in their pocket. And one example of what this means to em-
ployees is that when I was showing the Cimarron leaders during
that due diligence period, so nobody knew who they were, around
Life Line Emergency Vehicles, one of the employees on the floor
came up to us and they knew, of course, that I am CEO. He pulled
his license to act out of his card and he said, ‘‘I would like to stop
you for a moment to talk about an idea.’’ So I stopped the group.
We talked about the idea. I said, ‘‘I need to continue the tour. Jeff,
that is a great idea. Let’s get back on that.’’ I did not realize what
an impact this had on Ben and Tony from Cimarron. They said,
‘‘That is the kind of culture that we want to join, where each em-
ployee understands the rights and responsibilities of ownership.’’
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And that is what I think you have been hearing from my col-
leagues.
Chairwoman VELÁZQUEZ. Thank you.
Mr. Gillming, we know that over the next 10 years, more than
2.4 million baby boomers who own private businesses will retire.
Can you talk about how ESOPs allow for a smooth transition for
owners looking to retire from a business without being forced to
sell it or close it down all together?
Mr. GILLMING. Absolutely, Chairwoman.
What it allows for, as Mr. Abrams said, that there is a transition,
because the owner does not have to leave. There can be a transition
period where the individual or individuals that started the com-
pany are still there and helping the new owners transition in as
they take on that responsibility. But I have also seen what it
means for individuals that were employees that are now employee
owners and helping. They make the decisions. And when you show
them, yes, you are a part of this. And, then, you know, at the year-
end when they see that, hey, if the company is profitable it is good
for all of us, it is just a powerful wheel that continues to roll and
build momentum.
Chairwoman VELÁZQUEZ. Mr. Abrams, would you like to com-
ment?
Mr. ABRAMS. I certainly agree it is wonderful to see owners
come to the realization that the people who built the business with
them for all those years actually can take over and become new
owners. I think watching transitions from a sole proprietorship or
a partnership to a worker co-op is so heartening because it is big
change and it makes a big difference and those doors do not close.
Chairwoman VELÁZQUEZ. Any other? Mr. Goldstein?
Mr. GOLDSTEIN. Yes, absolutely. The employee-owners, I have
heard things said, for example, in Chickasha, Oklahoma, that no-
body ever retired from the trailer industry but now we expect that
people will. We have employees in our commercial printing plant
that have been employees for 44 years. Employee ownership makes
a difference. It is addressing wealth inequality. It is allowing fami-
lies to fund their retirement. It is very important to this country.
Chairwoman VELÁZQUEZ. And the impact that it has in the
local economies and also the communities. And it is just an unbe-
lievable, empowering feeling to know that they are invested in the
success of those companies because they are owners.
Well, thank you so much for your powerful testimonies. And we
have now heard about many of the benefits of employee ownership
a business can generate for employee-owners, their families, and
their local communities. And yet, despite all those benefits and de-
spite our work in the 115th Congress to address some of the obsta-
cles to employee ownership, it is clear we still have more work to
do and progress to achieve. And I heard you loud and clear on the
Department of Labor. We will be dealing with that issue, too.
If we intend to promote a secure retirement for America’s entre-
preneurs, we must continue to find ways to ease their path to em-
ployee ownership. Time and again, it has proven to be the most ef-
fective retirement plan for those small business owners who want
to retain the independence of their business while empowering
their employees by turning them into employee owners.
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As I did last Congress with the Main Street Employee Ownership
Act, I look forward to working with my colleagues from both sides
of the aisle to continue minimizing those barriers to employee own-
ership, help preserve the independence of thousands of small busi-
nesses, and save thousands of more jobs.
I will ask unanimous consent that members have 5 legislative
days to submit statements and supporting materials for the record.
Without objection, so ordered.
And if there is no further business to come before the Committee,
we are adjourned. Thank you.
[Whereupon, at 12:50 p.m., the Committee was adjourned.]
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APPENDIX
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49
SBD026 with DISTILLER Insert offset folio 49 here 39620.023
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50
SBD026 with DISTILLER Insert offset folio 50 here 39620.024
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51
SBD026 with DISTILLER Insert offset folio 51 here 39620.025
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52
SBD026 with DISTILLER Insert offset folio 52 here 39620.026
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53
SBD026 with DISTILLER Insert offset folio 53 here 39620.027
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54
SBD026 with DISTILLER Insert offset folio 54 here 39620.028
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55
SBD026 with DISTILLER Insert offset folio 55 here 39620.029
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56
SBD026 with DISTILLER Insert offset folio 56 here 39620.030
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57
SBD026 with DISTILLER Insert offset folio 57 here 39620.031
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58
SBD026 with DISTILLER Insert offset folio 58 here 39620.032
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59
SBD026 with DISTILLER Insert offset folio 59 here 39620.033
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60
SBD026 with DISTILLER Insert offset folio 60 here 39620.034
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61
SBD026 with DISTILLER Insert offset folio 61 here 39620.035
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62
SBD026 with DISTILLER Insert offset folio 62 here 39620.036
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63
SBD026 with DISTILLER Insert offset folio 63 here 39620.037
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64
SBD026 with DISTILLER Insert offset folio 64 here 39620.038
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65
SBD026 with DISTILLER Insert offset folio 65 here 39620.039
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66
SBD026 with DISTILLER Insert offset folio 66 here 39620.040
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67
SBD026 with DISTILLER Insert offset folio 67 here 39620.041
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68
SBD026 with DISTILLER Insert offset folio 68 here 39620.042
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69
SBD026 with DISTILLER Insert offset folio 69 here 39620.043
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70
SBD026 with DISTILLER Insert offset folio 70 here 39620.044
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71
SBD026 with DISTILLER Insert offset folio 71 here 39620.045
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72
SBD026 with DISTILLER Insert offset folio 72 here 39620.046
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73
SBD026 with DISTILLER Insert offset folio 73 here 39620.047
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74
SBD026 with DISTILLER Insert offset folio 74 here 39620.048
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75
SBD026 with DISTILLER Insert offset folio 75 here 39620.049
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76
SBD026 with DISTILLER Insert offset folio 76 here 39620.050
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77
SBD026 with DISTILLER Insert offset folio 77 here 39620.051
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78
SBD026 with DISTILLER Insert offset folio 78 here 39620.052
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79
SBD026 with DISTILLER Insert offset folio 79 here 39620.053
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80
SBD026 with DISTILLER Insert offset folio 80 here 39620.054
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81
SBD026 with DISTILLER Insert offset folio 81 here 39620.055
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82
SBD026 with DISTILLER Insert offset folio 82 here 39620.056
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83
SBD026 with DISTILLER Insert offset folio 83 here 39620.057
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84
SBD026 with DISTILLER Insert offset folio 84 here 39620.058
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85
SBD026 with DISTILLER Insert offset folio 85 here 39620.059
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86
SBD026 with DISTILLER Insert offset folio 86 here 39620.060
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87
SBD026 with DISTILLER Insert offset folio 87 here 39620.061
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88
SBD026 with DISTILLER Insert offset folio 88 here 39620.062
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89
SBD026 with DISTILLER Insert offset folio 89 here 39620.063
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90
SBD026 with DISTILLER Insert offset folio 90 here 39620.064
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91
SBD026 with DISTILLER Insert offset folio 91 here 39620.065
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92
Æ
SBD026 with DISTILLER Insert offset folio 92 here 39620.066
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File and source
- File
- CHRG-116hhrg39620.pdf
- Size
- 4,531,802 bytes
- SHA-256
- 7839e179e4a8b31bf0dcc37cb1eb8b41dbc237e65e60dda67595e87586e94854
- Our copy
- CHRG-116hhrg39620.pdf
- Original
- www.govinfo.gov