With the introduction of the Employee Ownership Development Act , Illinois is poised to create the largest dedicated public investment vehicle for employee ownership in the country.

State Rep. Will Guzzardi’s bill, HB4955, would authorize the Illinois Treasury to deploy a portion of the state’s non-pension investment portfolio into employee ownership-focused investment funds. 

That would represent a substantial investment of institutional capital in building wealth for Illinois workers and seed a capital market for employee ownership in the process. And because the fund is carved out of the state investment pool, it doesn’t require a single dollar of appropriations from the legislature.

Silver tsunami 

The timing of the Employee Ownership Development Fund could not be more urgent. More than half of Illinois business owners are over 55 years old and are set to retire in the coming decade. When these owners sell their firms, financial buyers and competitors are often the default exit – if owners don’t simply close the business for lack of a buyer. 

Each of these traditional paths risks consolidation, job loss and offshoring of investment and production. These are major disruptions to the communities that have long sustained these businesses. Without a concerted strategy, business succession is an economic development risk hiding in plain sight, and one that threatens local employment, supply chain resilience, and the tax base of communities across the country.

Employee ownership offers another path. Decades of empirical research show that employee-owned firms grow faster, weather economic downturns better (with fewer layoffs and lower rates of closure), and provide better pay and retirement benefits. 

The average employee owner with an employee stock ownership plan, or ESOP, has nearly 2.5 times the retirement wealth of non-ESOP participants. That comes at no cost to the employee and is generally in addition to a diversified 401(k) retirement account.

Because businesses are selling to local employees, employee ownership transitions keep businesses rooted in their communities. This approach can support a place-based retention strategy for state economic policymakers.  

Capital gap

Despite the remarkable benefits of employee ownership and bipartisan support from policymakers, a lack of private capital has impeded the growth of employee ownership: In the past decade, new ESOP formation has averaged just 269 firms per year. 

Most ESOP transactions ask the seller to be the bank, relying heavily on sellers to finance a significant portion of the sale themselves, often waiting five to 10 years to fully realize their proceeds. Compared to financial and strategic buyers who offer sellers their liquidity upfront, employee ownership sales are structurally uncompetitive in the M&A market.

A small but growing ecosystem of specialized fund managers has begun to fill this gap. They deploy subordinated debt and equity-like capital to provide sellers the liquidity they need, while supporting newly employee-owned businesses with expertise and growth capital (see for example, “Apis & Heritage helps thousands of B and B Maintenance workers become owners”). 

This approach is a recipe for scale, but the market remains nascent and undercapitalized relative to the generational pipeline of businesses approaching succession. To mature, the market needs anchor institutional investors willing to commit capital at scale.

State treasurers and other public investment officers could be those institutional investors. Collectively managing trillions of dollars in state assets, they have the portfolio scale, time horizons and fiduciary obligation to earn market returns while advancing state economic development. 

Illinois’ blueprint

Just as federal credit programs helped catalyze the home mortgage and venture capital industries in the 20^th century, state treasurers and comptrollers now have the opportunity to help build the employee ownership capital market in the 21^st. 

Illinois shows us how. The state’s Employee Ownership Development Act is modeled on proven investment strategies previously authorized by the legislature and pioneered by State Treasurer Michael Frerichs. The Illinois Growth and Innovation Fund and the FIRST Fund each ring-fence 5% of the state investment portfolio for investments in private markets and infrastructure, respectively, deployed through professional fund managers. Both have generated competitive returns while catalyzing billions of dollars in private co-investment in Illinois. 

The Employee Ownership Development Fund would apply that same architecture to employee ownership. The Treasurer would invest indirectly by capitalizing private investment funds deploying a range of credit and equity. The funds, in turn, would invest a multiple of the state’s commitment in employee ownership transactions.

The employee ownership field has matured to a point that is ready for institutional capital. The evidence base is robust. The fund management ecosystem is growing. And the business succession pipeline is larger than it will be for generations. 

Yet the field still lacks the publicly enabled financing interventions that have historically built new markets in this country. State treasurers, city comptrollers and other public investment officers have the tools and resources at their disposal to provide that catalytic, market-rate investment to enable the employee ownership market to scale.

Julien Rosenbloom is a senior associate at the Lafayette Square Institute.

Guest posts on ImpactAlpha represent the opinions of their authors and do not necessarily reflect the views of ImpactAlpha.

A coalition of education stakeholders has filed suit seeking an order declaring Wisconsin’s school finance system is unconstitutional, arguing it fails to adequately fund students’ education.

Filed in Eau Claire County, the suit doesn’t specify what the education interests believe the state would need to invest in K-12 education to make the system constitutional. 

Attorney Jeff Mandell, who represents the plaintiffs, said the ultimate goal is for the courts to set the parameters for what lawmakers would need to put into the system to make it constitutional. He anticipated once the courts issued such an order, the Legislature would be given the opportunity to address it in the following two-year budget.

He also noted state aid to public schools is $2 billion less than it was in 2009 when adjusting for inflation.

“We do not have what we need for our schools to thrive,” Mandell said during a virtual news conference.

The 2025-27 state budget invested $17.4 billion in K-12 education. According to the Legislative Fiscal Bureau, that will put the state’s share of public school costs at 66.3% in the first year of the biennium and 64.5% in the second.

The plaintiffs include five school districts, four teachers unions, two education advocacy organizations and eight individuals. The defendants include the Legislature, GOP leaders and members of the Joint Finance Committee.

Assembly Speaker Robin Vos, R-Rochester, vowed to vigorously defend against the lawsuit.

“This complaint is another meritless attempt by liberal activists to defund the state’s highly successful school-voucher program and interfere with the Legislature’s authority to fund public schools,” Vos said late yesterday.

The office of Senate Majority Leader Devin LeMahieu, R-Oostburg didn’t immediately return calls seeking comment.

A split state Supreme Court in 2000 upheld the constitutionality of Wisconsin’s school finance system, concluding that it effectively equalized the tax base among districts. That ruling also rejected a challenge to the spending caps that limit what districts can spend between general state aid and property taxes.

The suit filed Monday raises six claims, including that insufficient funding in the current system denies students an equal opportunity for a sound basic education and isn’t uniform as practicable across districts. It also argues the current special education reimbursement system is deficient.

It also argues that the nearly $700 million the state put into private school vouchers in the 2025-26 school year violates a Wisconsin Supreme Court ruling that the choice program is permitted only so long as “the State is already meeting its obligations to provide for public schools.”

The suit also argues charter schools have become an alternative public school option redirecting state money to schools that are “unaccountable to taxpayers and operate outside of the constitutionally mandated school district system.”

OLYMPIA, Wash. — The chair of the Washington House Finance Committee says a public hearing on the proposed “millionaires tax” drew the expected mix of strong support and sharp criticism, but she now says the public sign-in process itself may have been manipulated.

Rep. April Berg (D) Everett, chaired a roughly two-hour House Finance hearing and heard from backers and opponents, describing moments as “a little spicy” and saying she would have preferred “a little less vitriol.”

But she disputes that over 100,000 people signed up to participate, heavily weighted against the tax.

Berg said she was contacted ahead of the hearing by people who said their names were listed even though they did not register, or were listed under a position they did not take. She said that grew from a handful of reports into something far larger by the weekend, prompting staff to search for exact duplicates and other irregularities.

Berg said staff found more than 19,000 exact duplicate entries, and the issue “calls into question” part of the democratic process of testimony. She says lawmakers have asked the House Clerk and Attorney General to investigate any impropriety. The Snohomish County Democrat, along with most of her colleagues, approved an initiative just two years ago that called for an outright ban on future income taxes.

The “Millionaires Tax” legislation, approved by the State Senate last week, is expected to be amended by her committee, and Berg believes a vote on the House floor could take place next week. Yet, she expects, as does Governor Bob Ferguson, that there will be a legal and initiative challenge to the tax proposal.

When asked if she thought it was correct to include the income tax in the House and Senate budgets with the expectation of a challenge, Berg said, “I do,” she continued, “Folks say, hey, we don’t think this is legal. They have a right to adjudication going before our courts to argue their case.”

“At this moment, as a policy maker, as a chair of house, finance, as a legislator, I believe this bill is absolutely legal,” she said.

There were suggestions in advance of the meeting that the bill could have impacts on professional sports franchises and players. An NFL Player’s Association representative was slated to testify during the hearing, but did not appear for reasons that are unknown.

“Forty-one other states have an income tax. 41 other states have a tax similar to this on high earners in their state. I think that argument just does not hold water. That is like saying that we clearly don’t have professional sports in California, which has a much more aggressive income tax. New York has a much more aggressive income tax than us. Illinois. I mean, the list goes on,” she said. “We are the outlier at this moment. I think we’re going to be just fine recruiting very talented athletes across the board with this tax, just as those other 41 states are as well.”