PRINTER'S NO. 1000
No. 874 Session of 1985
INTRODUCED BY SWEET, MICHLOVIC, O'DONNELL, DAWIDA, F. E. TAYLOR,
MILLER, NAHILL, ITKIN, PRESSMANN, CIVERA, J. J. TAYLOR,
COWELL, HALUSKA, ACOSTA, KUKOVICH, PRATT, AFFLERBACH,
WOZNIAK, RICHARDSON, MRKONIC, MORRIS, VAN HORNE, STABACK,
FREEMAN, DeLUCA, LASHINGER, MURPHY AND FOX, APRIL 15, 1985
REFERRED TO COMMITTEE ON BUSINESS AND COMMERCE, APRIL 15, 1985
AN ACT
1 Amending the act of July 2, 1984 (P.L.568, No.113), entitled "An
2 act providing technical and financial assistance to employee-
3 ownership groups that seek to retain or preserve jobs by
4 restructuring an existing business into an employee-owned
5 enterprise with a substantial prospect of future recovery;
6 providing technical assistance on employee-ownership to
7 existing firms and current employee-owned enterprises in
8 Pennsylvania; and making appropriations," further providing
9 for technical assistance, financial assistance, and criteria
10 for evaluating applications; and providing for grants; and
11 removing certain time limitations by repeal.
12 The General Assembly of the Commonwealth of Pennsylvania
13 hereby enacts as follows:
14 Section 1. Sections 4, 5 and 6 of the act of July 2, 1984
15 (P.L.568, No.113), known as the Employee-Ownership Assistance
16 Program Act, are amended to read:
17 Section 4. Technical assistance.
18 (a) Authorization to advance funds.--The department is
19 authorized to advance funds to local administrative agencies for
20 the purpose of providing loans to employee-ownership groups in
21 industrial and commercial enterprises as defined in section 3 of
1 the act of August 23, 1967 (P.L.251, No.102), known as the
2 Industrial and Commercial Development Authority Law, for
3 technical assistance to develop or improve an employee-owned
4 enterprise.
5 (b) Eligibility.--Employee-ownership groups shall be
6 eligible for assistance if the employees in the employee-
7 ownership group are employed by, formerly employed by or
8 affiliated with one of the following:
9 (1) Existing firms facing a threat of substantial
10 layoffs or a plant closing and investigating a reorganization
11 of all or some portion of the firm's business activity, at
12 sites located within this Commonwealth, as an employee-owned
13 enterprise. For purposes of this section "existing firm"
14 shall include an ongoing concern, the assets of an existing
15 company or the assets of a company which has been closed for
16 no more than [one year] two years as of the date of
17 application for the feasibility study loan.
18 (2) Existing firms, not necessarily facing a threat of
19 substantial layoffs or a plant closing, but considering a
20 conversion to an employee-owned enterprise and seeking
21 professional services to accomplish this, if conversion to
22 employee ownership will create net new jobs or retain
23 existing jobs at sites within this Commonwealth.
24 (3) Existing firms which currently have some form of
25 employee ownership and require professional services to
26 insure success of the employee-owned enterprise in its effort
27 to create net new jobs or retain existing jobs at sites
28 within this Commonwealth.
29 (c) Uses.--Loans, grants, or a combination of the two, will
30 be made to employee-ownership groups for the following purposes:
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1 (1) Feasibility studies to investigate a reorganization
2 or new incorporation as an employee-owned enterprise. At a
3 minimum, the feasibility study should:
4 (i) Assess the market value and demand for the
5 product produced by the plant affected by the closing or
6 layoff.
7 (ii) Assess the market value and demand for other
8 products which could be manufactured or assembled at the
9 plant affected by the closing or layoff.
10 (iii) Evaluate the production costs incurred if the
11 plant were to be operated by the employee-ownership
12 group.
13 (iv) Determine whether there exists in the affected
14 area and in the employee-ownership group, the desire and
15 capacity to create a new production entity and to become
16 competitive.
17 (2) Professional services to implement a feasibility
18 study and other professional services to develop or insure
19 the success of an employee-owned enterprise.
20 (3) Grants for feasibility studies shall be awarded for
21 not more than 90% of the cost of the study. Local matching
22 shares should include, but are not limited to, individual
23 contributions by affected employees.
24 (d) Repayment.--Loans provided for feasibility studies and
25 other professional services to employee-ownership groups to
26 investigate a conversion to an employee-owned enterprise are
27 subject to the following repayment conditions:
28 (1) If the enterprise studied is purchased or improved
29 by the employee group, the employee group shall repay the
30 entire amount of the loan, [with] at no interest, in a lump
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1 sum at the closing of the purchase of the company or within
2 [one year] two years after the date of the release of the
3 loan by the department, whichever occurs later.
4 (2) If the enterprise studied is not purchased by the
5 employee group within one year after the completion of the
6 feasibility study, the applicant shall submit a final report
7 concerning the feasibility of repaying the loan.
8 (e) Other conditions.--
9 (1) The applicant shall provide evidence that there is a
10 prospect for recovery and future job growth or job retention
11 in applications under subsection (b)(1) or a substantial
12 prospect of job growth or job retention in applications under
13 subsections (b)(2) and (3).
14 (2) Maximum State participation is [50%] 75% of the
15 total cost of the technical assistance and the maximum loan
16 size is $100,000.
17 Section 5. Financial assistance.
18 (a) Authorization to advance funds.--The department is
19 authorized to advance funds to local administrative agencies for
20 the purpose of providing loans and loan guarantees to employee-
21 owned enterprises reorganizing industrial, manufacturing and
22 agricultural enterprises as defined in section 3 of the act of
23 May 17, 1956 (1955 P.L.1609, No.537), known as the Pennsylvania
24 Industrial Development Authority Act, for the development of
25 employee-owned enterprises.
26 (b) Eligibility.--Eligibility for this assistance shall be
27 limited to employee-ownership groups reorganizing an existing
28 enterprise which is facing a threat of substantial layoffs or a
29 plant closing, where adequate private financing is not
30 available. For purposes of this subsection "existing enterprise"
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1 shall include an ongoing concern, the assets of an existing
2 company or the assets of a company which has been closed for no
3 more than [one year] two years as of the date of completion of a
4 feasibility study.
5 (c) Uses.--Eligible project costs shall include land and
6 buildings, machinery and equipment and working capital secured
7 by accounts receivable and inventory.
8 (d) Debt instruments.--The financial subsidy provided should
9 be the minimum necessary to accommodate the borrower's financial
10 needs. Debt instruments shall include either or both of the
11 following:
12 (1) Loans, including deferred interest and principal
13 payments.
14 (2) Loan guarantees.
15 (e) Security.--Funds loaned shall be secured by lien
16 positions on collateral at the highest level of priority which
17 can accommodate the borrower's ability to raise sufficient debt
18 and equity capital. When the obligation of a firm is guaranteed,
19 the financial institution holding the obligation shall be
20 required to adequately secure the obligation.
21 (f) Loan limits.--The maximum loan or guarantee is
22 $1,500,000 per firm. Loan funds shall not exceed 25% of the
23 total project costs and guarantees shall not exceed 25% of the
24 total loan value. The term of the loan shall be the shortest
25 consistent with the needs of the firm, but no longer than 20
26 years. The interest rate on loans will be at or above the
27 interest rate on the bonds issued to fund this act.
28 (g) Equity requirement.--A significant equity investment by
29 the employee-ownership group equal to at least 10% of the
30 project cost and including substantial participation by having
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1 at least two-thirds of [the] those members of the employee-
2 ownership group employed at the project is required to qualify
3 for the loan or guarantee.
4 (h) Feasibility study.--Assistance shall not be approved
5 without a feasibility study demonstrating a substantial prospect
6 for job retention or future job growth and a business plan
7 including steps to facilitate labor-management cooperation.
8 General adherence to the plan is required to receive funding.
9 Section 6. Criteria for evaluating applications.
10 The local administrative agencies and the department shall
11 evaluate the applications based on the following criteria:
12 (1) Number of jobs retained or created in relation to
13 the size of the loan, loan guaranty or equity participation.
14 [The loan] Financial assistance shall not exceed a cost of
15 $15,000 per job created or retained.
16 (2) Ability of the applicant to repay the loan and the
17 likelihood of retaining or creating jobs.
18 (3) Evidence of other private financial commitments.
19 (4) Evidence that, without the financial assistance,
20 other Federal, State or local public and private investment
21 would be insufficient to finance the employee-owned
22 enterprise.
23 (5) The extent to which a firm employs a significant
24 number of employees or represents a significant portion of
25 employment in the community.
26 (6) Any additional criteria specified by the department
27 in guidelines or regulations.
28 Section 2. Section 12 of the act is repealed.
29 Section 3. This act shall take effect immediately.
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