HB4955 104TH GENERAL ASSEMBLY

LRB104 18508 SPS 31950 b

104TH GENERAL ASSEMBLY
State of Illinois
2025 and 2026
HB4955

Introduced , by Rep. Will Guzzardi

SYNOPSIS AS INTRODUCED:

New Act

Creates the Employee Ownership Development Act. Provides that the State Treasurer shall segregate a portion of the Treasurer's State investment portfolio in the Employee Ownership Development Account. Provides that moneys in the Employee Ownership Development Account shall be invested by the State Treasurer to provide employee ownership capital to employee ownership development projects seeking to locate, expand, or remain in the State. Sets forth provisions concerning Employee Ownership Development Account-Recipient Funds. Provides that the Employee Ownership Development Fund is created as a non-appropriated trust fund within the State treasury, which may receive a portion of earnings from the Employee Ownership Development Account. Provides for reporting requirements. Provides that the State Treasurer may adopt rules necessary to implement the Act. Effective immediately.

A BILL FOR

AN ACT concerning State government.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 1. Short title. This Act may be cited as the Employee Ownership Development Act.

Section 5. Definitions. As used in this Act:

"Broad-based employee ownership" means an ownership structure in which a majority of the equity interest in a business is held, directly or indirectly, by or on behalf of a broad base of the business's employees through an employee stock ownership plan, worker cooperative, employee ownership trust, or other similar structure that provides for meaningful employee participation in ownership.

"Employee ownership capital" means financing for investments that facilitate the transition of businesses to broad-based employee ownership or that provide growth capital to existing majority employee-owned businesses.

"Employee ownership development firm" means an entity that: (i) provides financing for transitions of businesses to broad-based employee ownership or growth capital to existing majority employee-owned businesses; and (ii) has a track record of identifying, evaluating, and investing in employee ownership transactions or demonstrates a credible and concerted effort to develop a pipeline of employee ownership transactions that meet certain criteria as determined by the State Treasurer.

"Employee ownership project" means an investment that: (i) facilitates the transition of a business in this State to broad-based employee ownership; (ii) provides growth capital to an existing majority employee-owned business in this State; or (iii) otherwise supports the development or expansion of broad-based employee ownership in this State.

Section 10. Employee Ownership Development Account.

(a) The State Treasurer shall segregate a portion of the Treasurer's State investment portfolio, which at no time shall be greater than 5% of the portfolio, in the Employee Ownership Development Account, an account that shall be maintained separately and apart from other moneys invested by the State Treasurer. Distributions from the investments in the Employee Ownership Development Account may be reinvested into the Employee Ownership Development Account without being counted against the 2% cap. The aggregate investment in the Employee Ownership Development Account and the aggregate commitment of investment capital in an Employee Ownership Development Account-Recipient Fund shall at no time be greater than 5% of the State's investment portfolio, which shall be calculated as: (i) the balance at the inception of the State fiscal year; or (ii) the average balance in the immediately preceding 5 fiscal years, whichever is greater. Any distributions from an Employee Ownership Development Account-Recipient Fund, in an amount not to exceed the commitment amount and the total distributions, may be reinvested into the Employee Ownership Development Account without being counted against the 5% cap. The State Treasurer may make investments from the Employee Ownership Development Account that help attract, assist, and support quality employee ownership development projects in this State. A portion of the investment earnings on the Employee Ownership Development Account may be deposited into the Employee Ownership Development Fund and reinvested by the State Treasurer.

(b) The State Treasurer may solicit proposals from entities to manage the Employee Ownership Development Account consisting of investments from private sector investors that must invest, at the direction of the general partner, in tandem with the Employee Ownership Development Account in a pro rata portion. The State Treasurer may enter into an agreement with the entity managing the Employee Ownership Development Account to advise on the investment strategy of the Employee Ownership Development Account and fulfill other mutually agreeable terms. All funds in the Employee Ownership Development Account shall be kept separate and apart from moneys in the State treasury.

(c) All or a portion of the moneys in the Employee Ownership Development Account shall be invested by the State Treasurer to provide employee ownership capital to employee ownership development projects seeking to locate, expand, or remain in this State by placing money with employee ownership development firms. The State Treasurer shall invest primarily through employee ownership-focused credit funds, private equity funds, and similar investment vehicles rather than engaging in direct lending or loan origination. In no case shall more than 15% of the capital in the Employee Ownership Development Account be invested in firms based outside of this State that do not demonstrate a credible and concerted effort to develop a pipeline of employee ownership projects.

(d) Any Employee Ownership Development Account-Recipient Fund created by an employee ownership development firm in which the State Treasurer places money in accordance with this Section shall be required by the State Treasurer to seek investments in employee ownership projects. Any Employee Ownership Development Account-Recipient Fund created by an employee ownership development firm in which the State Treasurer places money under this Section shall invest a minimum of 1.5 times the aggregate amount of investable capital that is received from the State Treasurer under this Section in employee ownership projects during the life of the fund. Investable capital is calculated as committed capital, as defined in the firm's applicable fund's governing documents, less related estimated fees and expenses to be incurred during the life of the fund. Transactions outside of this State shall be expressly permitted beyond this floor, enabling fund managers to maintain diversified multi-state portfolios while developing an Illinois-focused deal pipeline.

(e) All Employee Ownership Development Account-Recipient Funds shall also invest additional capital in employee ownership projects during the life of the fund if, as determined by the fund's manager, the investment:

(1) is consistent with the firm's fiduciary responsibility to its limited partners;

(2) is consistent with the fund manager's investment strategy; and

(3) demonstrates the potential to create risk-adjusted financial returns consistent with the fund manager's investment goals.

(f) Employee Ownership Development Account-Recipient Funds shall be permitted to deploy capital into:

(1) subordinated loans and mezzanine debt that sit junior to senior bank loans, but senior to seller notes, and which may include warrants where appropriate;

(2) preferred or structured equity in majority employee-owned firms seeking growth capital, potentially paired with warrants, so long as they are not unduly dilutive of majority employee ownership; and

(3) other instruments as determined appropriate by the State Treasurer to facilitate broad-based employee ownership.

(g) The State Treasurer's investment policy shall restrict the use of proceeds from the Employee Ownership Development Account to transactions that deliver majority broad-based employee ownership through an employee stock ownership plan, worker cooperative, employee ownership trust, or other structure approved by the State Treasurer.

(h) All Employee Ownership Development Account-Recipient Funds shall report the following information to the State Treasurer on a quarterly or annual basis, as determined by the State Treasurer, for all investments, including, but not limited to:

(1) the names of companies or employee ownership projects invested in during the applicable investment period;

(2) the geographic location of employee ownership projects;

(3) the date of the initial and any follow-on investments;

(4) the cost of the investment;

(5) the current fair market value of the investment;

(6) the number of employees at each portfolio company at the time of investment and at each subsequent reporting period; and

(7) the percentage of employee ownership achieved in each transaction.

(i) If, as of the earlier to occur of (i) the fourth year of the investment period of any Employee Ownership Development Account-Recipient Fund or (ii) when that Employee Ownership Development Account-Recipient Fund has drawn more than 60% of the investable capital of all limited partners, that Employee Ownership Development Account-Recipient Fund fails to invest the minimum amount required under this Section in employee ownership projects, then the State Treasurer shall deliver written notice to the manager of that fund seeking compliance with the minimum amount requirement under this Section. If, after 180 days after delivery of notice, the Employee Ownership Development Account-Recipient Fund still fails to invest the minimum amount required under this Section in employee ownership projects, then the State Treasurer may elect, in writing, to terminate any further commitment to make capital contributions to that fund which otherwise would have been made under this Section.

(j) The Employee Ownership Development Account and investments made in the Employee Ownership Development Account shall be managed in compliance with the State Treasurer's Responsible Contractor Policy and the Illinois Sustainable Investing Act.

Section 15. Employee Ownership Development Fund. The Employee Ownership Development Fund is created as a non-appropriated trust fund within the State treasury, which may receive a portion of earnings from the Employee Ownership Development Account and may be used by the State Treasurer to pay expenses related to this Act, including, but not limited to, consulting with external advisors to assist with manager selection, due diligence, and monitoring.

Section 20. Annual report. Beginning one year after the effective date of this Act, and annually thereafter, the State Treasurer shall submit a report to the General Assembly concerning the activities and performance of the Employee Ownership Development Account. The report shall include:

(1) the total amount invested in the Employee Ownership Development Account;

(2) a summary of investments made through Employee Ownership Development Account-Recipient Funds;

(3) the number and geographic distribution of employee ownership projects financed;

(4) the estimated number of workers in this State who have become employee-owners as a result of investments made under this Act; and

(5) the financial performance of the Employee Ownership Development Account.

Section 25. Rules. The State Treasurer may adopt rules necessary to implement this Act.

Section 99. Effective date. This Act takes effect upon becoming law.