A Republican budget proposal calling for cutting taxes by $4.5 trillion and slashing federal spending by $2 trillion is sparking heated debates around which federal programs to cut. A possible area of bipartisan agreement: promoting economic mobility for hardworking Americans through ownership of homes and businesses.
Legislators need detailed data at their fingertips to make the case for policies that promote housing affordability and ownership pathways, said Lafayette Square Institute’s Jack Moriarty. The Washington, DC-based nonprofit affiliate of Lafayette Square, has launched 535 Insights to provide data-driven insights on housing and small business risks and opportunities at a state and district level.
“There’s a lot going on in the new administration and the new Congress, as we all know,” Moriarty told ImpactAlpha. “We’ve been heartened by the level of bipartisan appetite that is as strong as ever, I would say, to address economic mobility challenges, and to certainly address housing affordability and homeownership. The meetings we’ve had with congressional staff, it’s full speed ahead.”
Nationally, more than half of renters are burdened with housing costs, the resource shows, with a typical US family that owns having 38 times the wealth of a typical that rents their home. More than a quarter of residents in the US are currently facing eviction or foreclosure.
535 Insights presents employee ownership as a US economic development strategy. More than half of US business owners are aged 55 and older. “Without a policy strategy to address business succession, we risk the loss of American businesses and their local jobs,” 535 Insights argues.
The intent of 535 Insights is to spark conversations with congressional leaders on key policy issues and proposals, says Moriarty, while giving them access to real data insights they could use to strengthen their presentations.
“A lot of members want to see how their district, or state in the case of US senators, is performing relative to their peers,” he adds. “A lot of the effort was not necessarily producing new data sources, but really hunting down what’s out there.”
The tool is also valuable for investors that are developing solutions for affordable housing, homeownership and employee ownership, says longtime impact investor Antony Bugg-Levine, who is also an advisor to Lafayette Square Institute.
“It’s going to take trillions of dollars to capitalize the transition in ownership of companies whose owners are retiring and selling to workers,” Bugg-Levine says. “Given that these are highly capital-intensive solutions, they also need private investment. We also know that there needs to be conducive policies to make those opportunities available to impact investors.”
Policy proposals
Several bipartisan legislative initiatives are being introduced in Congress to support affordable housing, homeownership and employee-owned businesses.
Angus King (I-Maine) and Jerry Moran (R-Kan.) this week announced plans to introduce The Farmhouse-to-Workforce Housing Act to expand a housing preservation grants program to support rural homeowners in building more rental housing on their land. Rural communities in Maine and Kansas are facing a serious housing shortage, King and Moran argue.
In Maine, for example, nearly half of the state’s renters are burdened by housing costs and 44% of residents are facing eviction or foreclosure. In Kansas, where 44% of renters are cost-burdened, there’s a housing shortage of close to 9,000 units.
“It’s important that our housing program offer creative solutions to address this issue,” said Moran. “Modernizing the Housing Preservation Grants program will help create new avenues for renovating and constructing homes in smaller communities across the country.”
Other proposed bills include The Employee Equity Investment Act, introduced by Maryland’s Democrat senator Chris Van Hollen, which has gained bipartisan support from other senators and would support the creation of Employee Equity Investment Companies to finance employee stock ownership plans, or ESOP conversions.
“There’s a real demand from Capitol Hill and from members of both parties for tailored analytics for place-based data,” Moriarty says. “For a lot of members who are data-driven, before they chart their course on where they’re going to spend time legislatively, they really want to see the data. They want to see the facts and the evidence.”
Housing and wealth
535 Insights highlights a critical need for policies that enable innovative affordable housing strategies that struggle to attract capital at scale. “Of the over $200 billion that has been invested annually in housing in recent years, only a fraction supports projects affordable for working families,” the resource reads.
The US faces a housing shortage of four million homes, which has contributed to rising housing costs that has disproportionately impacted working-class families, driving many of them into high-poverty neighborhoods and further limiting their access to economic opportunities. “Rising housing costs has made the American Dream of homeownership increasingly unattainable — narrowing pathways for families to build wealth,” reads 535 Insights.
535 Insights also highlights pathways to employee ownership through employee stock ownership plans, or ESOPs, which have proven the ability to over 2.5 times more retirement wealth for workers—in addition to superior pay and benefits—compared to traditional companies.
KKR’s Pete Stavros in September last year launched Expanding ESOPs to work with lawmakers on modernizing existing ESOP legislation and make it easier for retiring owners to sell to employees. The 51-year-old structure was created through 1974’s Employee Retirement Income Security Act, which passed with strong bipartisan support.
The coalition includes more than 50 major foundations, financial institutions, law and advisory firms and advocacy groups, including Ford Foundation, Project Equity and the National Center for Employee Ownership.
Employee ownership can build a source of retirement wealth for US workers, the resource suggests, with more than half of Americans aged 15 to 64 without a retirement account. In a recent ESOP sale, some employee-owners of Vermont Information Processing will see up to $10 million each in payouts. The employee-owned company was sold for $1 billion last week to global private equity giant Warburg Pincus.
Accelerating impact
In Colorado, state legislators passed laws to create tax credits and a cash collateral program to help boost the number of employee-owned companies in the state (see, “Colorado is demonstrating how states can accelerate conversions to employee ownership (video)”).
The laws have produced results. Across Colorado’s eight districts, 535 Insights shows, there are 128 ESOP-owned companies. Their 46,000 employee-owners have an average wealth balance of $121,000 through their individual ownership stake.
When it comes to ESOP-owned companies, Colorado ranks 16 out of the 50 US states. California leads all states with 723 in ESOP-owned companies, driven in part by a high concentration of businesses looking for succession planning options like ESOPs and employee ownership trusts, or EOTs, and Gov. Gavin Newsom’s California Employee Ownership Act that supports employee-owned businesses in the state.
The US is home to a total of 5,744 ESOP-owned companies with close to two million employee owners. The average ESOP balance per employee is $137,000.
Colorado’s cash collateral program helped Apis & Heritage Capital Partners, a Washington, DC-based impact investing firm, secure financing to complete the ownership transition of Sky Blue Builders, a Denver-based contractor and construction management firm, to its 40 employees.
Through its employee-led buyout structure, which shares similar characteristics with ESOPs, Apis & Heritage says employee-owners can retire with $70,000 to $120,000 in savings.
Bugg-Levine says to the extent that the 535 Insights resource helps advance affordable housing, homeownership and employee ownership-focused legislation in Congress, impact investors could benefit from financial incentives enabled by such laws. “That to me is a really important contribution that this resource will make,” he adds.
