Posted by:
Steve Dubb
$50M linked deposit fund created
Launched in May 2008, the Indiana ESOP Initiative is a new state program designed to promote and encourage the formation of Employee Stock Ownership Plan companies. State Treasurer Richard Mourdock began his effort to create an Indiana state structure to support ESOPs in February 2007, when he created an ESOP Advisory Committee, which focused on the question: “How might we encourage more companies to become ESOPs in the State of Indiana? The motivation for the effort: as the State Treasurer’s website points out, “ESOPs have a clear track record of creating wealth, encouraging entrepreneurial attitudes, and increasing productivity… One of the best reasons to help Indiana companies become employee-owned,” Mourdock adds, “is that no group of employee-owners have ever, ever, ever, ever moved their company to Mexico or China!” The result of the committee’s efforts is the Indiana ESOP Initiative, a $50 million state investment through a linked deposit program that aims to encourage Indiana banks to finance ESOP transactions. Like any “linked deposit” program, the way the program works is that the Indiana state government will shift its insured deposits to banks that make desired loans—in this case, loans that support ESOPs. As Treasurer Mourdock’s website explains, in the program the state will “purchase CDs at a slightly reduced rate of interest, and the financial institution will agree to reduce the interest rate on the loan made to the company.” The annual cost of this program to the state treasury is estimated to be $500,000 a year, an amount that may well be offset by the additional revenue generated in taxes from the employment creation effects of the program. Additionally, Credit Suisse, who is managing the $155 million Indiana Investment Fund on behalf of Indiana’s Public Employees’ Retirement Fund & Indiana Teacher’s Retirement Fund targeted for investment in Indiana, has committed to consider on a case by case basis the purchasing of equity in an Indiana company for the purpose of completing an ESOP transaction. Effectively, this is a form of economically targeted investment (ETI).
There is also a personal angle to this story, Mourdock himself was an ESOP member. Mourdock talks about his ESOP experience here. In 1988, Mourdock’s employer began the process of becoming 100% employee-owned. In 2001, at the age of fifty, Mourdock left the company with sufficient retirement savings to enable him to begin his own business and become active in state politics. “I would not have the opportunity to serve as Indiana’s State Treasurer if I had not been involved with an ESOP early in my career,” says Mourdock.
Indiana has about 200 ESOP companies. Among these are:
Alliance Benefit Group of Indiana, an Indianapolis employee benefit consulting firm that, among other things, helps other businesses set up ESOPs.
Anderson Tool & Engineering, a company located in Anderson, Indiana, that is 80% employee-owned and is one of the largest specialty machine builders in the Midwest.
Bender Lumber, a Bloomington-based lumber retailer that now has nine locations.
Katz, Sapper & Miller, an Indianapolis-based accounting firm with 200 employee-owners.
McDaniel Fire Systems, an employee-owned company based in Valparaiso, Indiana that has approximately 460 employee-owners and serves customers throughout the Midwest and Special Hazards customers nationwide.
Miller Health Systems, a 3,000-person employee-owned company, based in Warsaw, Indiana, that operates 30 nursing homes offering rehabilitation services, 10 Senior Living assisted living communities, and a hospital transitional unit.
Moss Building Products, a 100% employee-owned company, based in Fort Wayne, which is Northeastern Indiana’s largest supplier of commercial building products.
Pools of Fun, an employee-owned company based in Plainfield, which has installed over 4,000 pools and – outside of Florida, California and Arizona – now ranks as the third largest pool builder in the country.
Rieth-Riley, a 100% employed-owned contractor based in Goshen, Indiana; founded in 1916, Rieth-Riley operates throughout Indiana and Michigan, and has been employee-owned for the past 20 years.