2019 Lane Reports

Illinois Builds a Future for Worker Co-ops

The Lane Report, July 2019
Monday, July 1, 2019 10:00 am
by Marc J. Lane

Illinois Builds a Future for Worker Co-ops

By Marc J. Lane

A worker co-op is a business enterprise collectively owned and democratically controlled by workers who come together to pursue the economic, social and cultural goals they share. Prizing transparency and accountability, co-ops embrace the values of self-reliance, equality, equity and solidarity.

Here and everywhere, public policy should encourage worker co-ops. But Illinois law has historically been inhospitable to them. The state’s century-old co-op statute, drafted with only producer and consumer cooperatives in mind, remained on the books virtually without change until 2016. Even after a well-intentioned, but modest amendment that year, the Co-operative Act continues to discourage the launch of worker co-ops by limiting their access to capital and placing onerous bureaucratic hurdles in their way. All that is about to change.

The state’s Limited Cooperative Association legislation, passed by the General Assembly on May 16 and now awaiting Governor JB Pritzker’s signature, will create a new, hybrid business form for worker co-ops that’s socially impactful, yet market-driven.

The limited cooperative association will offer workers the benefits of both the traditional worker co-op and the limited liability company, the most popular form of business organization for privately held concerns in the United States.

Honoring the core principles of a traditional worker co-op, the new law will authorize the establishment of a business each of whose worker-owners has one vote on association matters and which equitably shares its profits with those members as “patronage” dividends. Reflecting the features of a limited liability company, the law will also support sweat equity contributions and shield its members from the debts of the enterprise. Moreover, by avoiding the classification of worker-owners as employees, the law will overcome IRS and Labor Department rules that prevent immigrants without legal status or work authorization from launching, or participating in, worker co-ops.

America’s worker cooperatives are usually owned and controlled by residents of disadvantaged communities, so facilitating the formation of such businesses in Illinois is likely to foster economic stability and sustainable growth in the state’s most underinvested neighborhoods. As workers become more self-sufficient, worker exploitation and racial discrimination are likely to wane. And as the number of  businesses operating as participatory democracies grows, so should civic engagement.

Illinois boasts 180 low-profit limited liability companies (L3Cs) that permanently and irrevocably place charitable or educational purposes above all others, thereby gaining unique funding and governance advantages; and 50 benefit corporations that seek to create a material, positive impact on society and the environment. With the enactment of the state’s Limited Cooperative Association legislation, it will further burnish its brand as the “Delaware of Social Enterprise.”


Marc J. Lane is a Chicago attorney and financial adviser and the vice chair of the Cook County Commission on Social Innovation.

Peterborough's problem was daunting: Sixty percent of prisoners serving short-term sentences historically had gone on to re-offend within a year after their release. But policymakers were confident that a solution was within their reach. They attracted private investment to pay experienced social service agencies to provide intensive, multidisciplinary support to short-term prisoners, preparing them to re-enter society and succeed outside the penal system. - See more at: http://www.chicagobusiness.com/article/20131007/OPINION/131009850/a-new-kind-of-futures-contract-for-illinois#sthash.ThgxeiFt.dpuf

The world's first social impact bond, or SIB, was introduced in 2010 to fund innovative social programs that realistically might reduce recidivism by ex-offenders in Peterborough, England, and, with it, the public costs of housing and feeding repeat offenders. Prudently building on the strengths of that initiative, Illinois Gov. Pat Quinn is rolling out SIBs to help solve some of the state's most vexing social problems.

A SIB isn't a traditional bond where investors are guaranteed a fixed return but a contract among a government agency that agrees to pay for improved social outcomes, a private financing intermediary and private investors. SIBs shift the risk of experimenting with promising but untested intervention strategies from government to private capital markets, with public funds expended only after targeted social benefits have been achieved.

Peterborough's problem was daunting: Sixty percent of prisoners serving short-term sentences historically had gone on to re-offend within a year after their release. But policymakers were confident that a solution was within their reach. They attracted private investment to pay experienced social service agencies to provide intensive, multidisciplinary support to short-term prisoners, preparing them to re-enter society and succeed outside the penal system.

The government decided which goals would be supported, but exactly how those goals would be achieved was left to the private sector. It was the investors, through a bond-issuing organization, who ultimately endorsed the allocation of investment proceeds — how much would be invested in job training, drug rehabilitation and other interventions.

If the Peterborough plan eventually shrinks recidivism rates by 7.5 percent or more, the government will repay the investors' capital and share the taxpayers' savings with them, delivering up to a 13 percent return. If the target isn't hit, the investment will have failed and the government will owe the investors nothing.

Illinois' SIB effort was spearheaded by the state's Task Force on Social Innovation, Entrepreneurship and Enterprise — the governor's think tank on social issues, which I am privileged to chair — with support from Harvard University's John F. Kennedy School of Government, the Rockefeller Foundation and the Aurora-based Dunham Fund. A request for information issued by the Office of Management and Budget on May 13 yielded responses from service providers eager not only to reduce recidivism here but also to create jobs, revitalize communities, improve public health outcomes, curb youth violence, cut high school dropout rates and alleviate poverty.

Now the governor has issued a request for proposals intended to spur better outcomes for Illinois' most at-risk youth — by increasing placement stability and reducing re-arrests for youth in the state's Department of Children and Family Services, and by improving educational achievement and living-wage employment opportunities justice-involved youth most likely to re-offend upon returning to their communities.

Kudos to Mr. Quinn for bringing SIBs to Illinois. May they soon start delivering on their promise.

- See more at: http://www.chicagobusiness.com/article/20131007/OPINION/131009850/a-new-kind-of-futures-contract-for-illinois#sthash.ThgxeiFt.dpuf
The world's first social impact bond, or SIB, was introduced in 2010 to fund innovative social programs that realistically might reduce recidivism by ex-offenders in Peterborough, England, and, with it, the public costs of housing and feeding repeat offenders. Prudently building on the strengths of that initiative, Illinois Gov. Pat Quinn is rolling out SIBs to help solve some of the state's most vexing social problems. - See more at: http://www.chicagobusiness.com/article/20131007/OPINION/131009850/a-new-kind-of-futures-contract-for-illinois#sthash.ThgxeiFt.dpu

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