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New tools for old economic-development problems

The Republicans have left town; the Democrats are already off and running. Excitement is in the air because campaigns always ignite an element of hope that tomorrow is going to be better than today.

No one likes to be a spoilsport. So let’s just acknowledge that the Minnesota economy and the state budget are in the tank and then get back to enjoying the excitement of the times — and looking for a brighter tomorrow.

There are underutilized tools available to help communities, foundations, nonprofit organizations, workers, local units of government, socially responsive corporations and socially motivated investors to jump-start the Minnesota economy. These tools have application for both our largest cities and our smallest, most remote rural communities.

Let’s look at two of them:

Minnesota’s 308B cooperative law.
This law is already on the books (May 2003), and it allows outside investors to team with cooperative members to form a hybrid cooperative enterprise.

A North Carolina cooperative business-consulting firm had lawyers standing outside the secretary of state’s office overnight to be first to file as a 308B cooperative corporation in Minnesota. There was hope in co-op circles at the time that Minnesota would become for cooperative enterprises what Delaware is for public stock corporations, the place where enterprises wanted to register for doing business.

Alas, Amy Fredregill, the vice president of the Minnesota Association for Cooperatives, checked with the Minnesota secretary of state’s office on Tuesday and found only 33 active cooperatives registered and governed under the 308B law. The split between actual Minnesota enterprises and Delaware-like filings for out-of-state concerns wasn’t immediately known.

The importance of this new structure is that it helps co-op members raise capital from people or groups that can share in the profits. This last goal is somewhat modified. The primary goal of these investments may be community development or market development and those goals supersede basic return on investment objectives. We will return to this theme later.

Vermont’s L3C law. Vermont has tried to do for nonprofit organizations and foundations what Minnesota is trying to do for cooperatives. This new law, which went on the books in May, has only had a “few” companies register in its first four months of existence, a spokeswoman for the Vermont secretary of state’s office said, but Vermont has made itself available for nonprofit-supported investment enterprises to register, regardless where they do business.

The L3C law is short for “low-profit limited liability company,” and is itself a hybrid to combine entrepreneurial development with nonprofit, or foundation support, because of a perceived social or charitable purpose. The New York-based Mary Elizabeth and Gordon B. Mannweiler Foundation promoted the law.

A short-form explanation of the Vermont law is provided by the Community-Wealth.org organization and website:

1) To give private foundations the opportunity to have a modest return on an investment and the potential to recoup the funds — unlike a one-time disbursement of money through a grant.

2) To give low-profit companies that have socially responsive goals access to financing by broadening the scope of investors to include private foundations, governments and independent investors.

A quick check with Minnesota-based foundations that are instrumental to regional economic development didn’t produce evidence of a need for Minnesota to adapt the Vermont law. It really is new. But it is being watched, said a person with the Minnesota Council for Nonprofits umbrella organization.

A Call to Action.
  Assume that the state budget will not have surplus revenue to fund new grant programs and economic-development initiatives when the Legislature returns to St. Paul in January. Lawmakers, state officials and civic leaders might better look at economic-development tools available for communities and entrepreneurs and determine what should be added or tweaked to make them more effective.

The “tools” cited above are related in several ways. Both are linked in that they enable people to raise capital for entrepreneurship that will serve social and economic objectives for local communities and regions. Both are regulated by different legal codes and need unique professional services such as law and accounting services. Both three are helped enormously when they have public research and guidance support.

Minnesota’s 308B law is now having a fifth-year anniversary. Is it working as intended, or should it be modified in ways that would make it more useful? That law was written with the assistance of two of the Twin Cities’ largest legal firms — Lindquist & Vennum and Dorsey & Whitney — that have large cooperative law practices. Some cooperative law experts have joined other firms and expanded Minnesota’s position as a center for cooperative law practice. Let’s tap these resources and reexamine the law.

Would Vermont’s L3C program or an adaptation of it help Minnesota nonprofits and foundations in their economic development work? This would take research from scratch to determine. The Southwest Minnesota Initiative Fund, one of several regional funds started by the McKnight Foundation, already offers a revolving loan fund, a renewable energy loan program, a regional centers loan program, a small-communities loan program and a micro-enterprise loan program — often in tandem with government units and other charitable groups. At first blush, it is questionable that an L3C program would do anything for such an established fund. But it might help community investors form a new community investment fund that could partner with McKnight units or other groups. It deserves a close look.

In rural Minnesota, SEIU Healthcare Minnesota and UFCW unions are among groups concerned about these demographic changes and declining health care services in rural Minnesota. Community leaders and rural retailers should be as well.

In a variant of a cooperative business model being developed in Wisconsin, a rural community could form a hybrid company like the tools mentioned above to maintain assisted-living and long-term-care homes. Moreover, independent physical therapists, dieticians and other home care delivery people could form a cooperative through their union and take an equity position in a community service, low-profit limited liability company enterprise to maintain and operate the care facilities and coordinate home-care services. In such an L3C-type venture, community members could also invest knowing that their investment will help the community and their own businesses even though it won’t produce great direct returns on investment.

Who wins? The senior citizens or disabled who don’t want to leave their home towns to secure proper care. The community that wants economic activity generated by keeping people at home and by the children, grandchildren and friends who come to visit. And the healthcare workers and professionals who can remain in the community, take employment records to the bank and qualify for home mortgages, and form a pool to secure healthcare insurance benefits for themselves and their families. Rural healthcare workers have as many problems getting affordable health insurance as farmers.

In the Twin Cities: Suppose an investment banking group comes to town and buys your factory or, for that matter, your newspaper or air carrier. Suppose that group isn’t interested in the company’s product and seeks quick profits by selling off real-estate assets, lays off people to cut costs and scales back the products or services before looking for new buyers.

This happens all the time in the modern world of business. Passive investors may clean up big before they sell what remains of the enterprise and head for new shores like Vikings of old. Runes or ruin, communities are left to clean up what’s left after the raid. Employees are obviously affected. And so are retailers, suppliers, property owners, service providers, consumers and people dependent on the enterprise’s products in various direct and indirect ways.

Minnesota once mustered its resources to repel a raid on the former Dayton-Hudson Corp. Minnesota has used its natural and intellectual resources to launch new enterprises and whole new industries in past years. In economic times like today, it would be helpful to re-examine our tools for development and retention to make sure our communities, employees, nonprofit organizations, foundations and socially-responsive investors are properly equipped.

Lee Egerstrom, a veteran journalist and author of books on agriculture, economic development and cooperative business development, is a research fellow for Minnesota 2020, working in the area of rural economic development. This article originally appeared on the Minnesota 2020 website.


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If you’re interested in joining the discussion by writing a Community Voices article, email Susan Albright at salbright [at] minnpost [dot] com.

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