Merge pull request 'Socialism: make the lock hold, and close its back doors' (#125) from feature/socialism into master

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 title: When a Locked Co-op Goes Bankrupt
 section: The Co-op
 order: 31
 summary: Federal bankruptcy law would override the lock, so a failed co-op could be sold whole to anyone, and this page lays out the amendment Congress would need to pass, modeled on how it already treats charities, along with what it costs creditors and how workers get a real chance to buy.
 ---
 # When a Locked Co-op Goes Bankrupt
 [The lock](the-lock.md) says a co-op funded by the bank can never be sold to conventional owners. That holds while the co-op is healthy. It can break at the worst moment, when the co-op fails and a bankruptcy court takes charge of what's left.
 This page explains why, what Congress already does for a similar kind of organization, and what the amendment would say. A few terms first:
 - **The lock-holder** is the independent organization that holds the co-op's *lock share*, a single share that pays nothing but can veto a sale ([The Lock](the-lock.md#how-the-lock-is-made-to-hold)).
 - **A going concern** is a business sold whole and still running, with its customers, contracts and trained staff. It's usually worth much more than the same equipment sold off piece by piece.
 - **Creditors** are everyone the co-op owes: lenders, suppliers, workers, tax agencies, and anyone it has injured.
 ## Why bankruptcy breaks the lock
 When a business files for bankruptcy, everything it owns goes into a pool the court controls, called the *estate*, and is used to pay creditors as much as possible. There are three main routes:
 - **Liquidation (Chapter 7).** A trustee sells what the business owns and pays creditors in order of priority. The trustee can keep the business running for a limited time if that helps sell it ([11 U.S.C. § 721](https://www.law.cornell.edu/uscode/text/11/721)).
 - **Reorganization (Chapter 11).** The business keeps running under a plan the court approves. Debts are cut or stretched out, and ownership often passes to creditors. Under the *absolute priority rule*, if a group of creditors votes against the plan, the old owners can't keep anything until those creditors are paid in full ([11 U.S.C. § 1129(b)(2)(B)](https://www.law.cornell.edu/uscode/text/11/1129)).
 - **Small-business reorganization (Subchapter V).** A faster version of Chapter 11 for businesses owing no more than $3,424,000 ([11 U.S.C. §§ 1182(1) and 101(51D)](https://www.law.cornell.edu/uscode/text/11/101), as adjusted in 2025). Here the absolute priority rule doesn't apply. If creditors don't agree to the plan, the owners can still keep the business by paying creditors all of its projected *disposable income*, what's left after the costs of running it, for three to five years ([11 U.S.C. § 1191](https://www.law.cornell.edu/uscode/text/11/1191)). Most locked co-ops would fit under that limit.
 The lock can fail in four places:
 1. **The estate ignores limits on selling.** The Bankruptcy Code says a business's property goes into the estate "notwithstanding any provision" in an agreement or in state law "that restricts or conditions transfer" of it ([11 U.S.C. § 541(c)(1)](https://www.law.cornell.edu/uscode/text/11/541)). The lock is exactly that kind of provision.
 2. **The court can sell everything, "free and clear."** A trustee can sell the estate's property outside the ordinary course of business, free and clear of other people's interests in it ([11 U.S.C. § 363(b) and (f)](https://www.law.cornell.edu/uscode/text/11/363)). A court could treat the lock-holder's rights as one of those interests and pay them off in cash. In practice, a failed business usually goes to the highest bidder.
 3. **A reorganization plan can hand the firm over.** A plan can sell the business, merge it or rewrite its charter "notwithstanding any otherwise applicable nonbankruptcy law" ([11 U.S.C. § 1123(a)(5)](https://www.law.cornell.edu/uscode/text/11/1123)). A standard plan cancels the old ownership and issues new shares to creditors. The Code also requires the reorganized company's charter to ban shares that carry no vote ([§ 1123(a)(6)](https://www.law.cornell.edu/uscode/text/11/1123)), while this model relies on outside money that carries no vote ([Capital, After](capital.md)).
 4. **A lender can sell without going to court at all.** A lender with a claim on all of a business's assets can sell them, or take them, after a default under state law ([UCC § 9-610](https://www.law.cornell.edu/ucc/9/9-610)). No bankruptcy is needed.
 So without a change in the law, a failed co-op's whole business could be bought by a conventional company. The lock would protect only healthy co-ops, which need it least.
 ## What Congress already does for charities
 Congress already keeps some organizations' property dedicated to its purpose in bankruptcy. The way it does it is simple: the Bankruptcy Code steps back and lets the ordinary law that governs those organizations decide.
 - **A charity's property can go to a non-charity "only under the same conditions as would apply if the debtor had not filed"** for bankruptcy ([11 U.S.C. § 541(f)](https://www.law.cornell.edu/uscode/text/11/541)). This covers tax-exempt charities.
 - **Court-approved sales by a nonprofit corporation must follow the law** that governs its transfers outside bankruptcy ([§ 363(d)(1)](https://www.law.cornell.edu/uscode/text/11/363)), and so must transfers under its reorganization plan ([§ 1129(a)(16)](https://www.law.cornell.edu/uscode/text/11/1129)). These three rules were added in 2005.
 - **Since 1978, creditors can't force a nonprofit into bankruptcy** ([§ 303(a)](https://www.law.cornell.edu/uscode/text/11/303)), and a court can't turn its reorganization into a liquidation unless it asks ([§ 1112(c)](https://www.law.cornell.edu/uscode/text/11/1112)).
 - **Also since 1978, valid limits on transferring a person's interest in a trust hold in bankruptcy** ([§ 541(c)(2)](https://www.law.cornell.edu/uscode/text/11/541)). That rule keeps some assets away from creditors, so it's a precedent for protecting a purpose at creditors' expense, not a neutral one.
 A locked co-op isn't a charity. It's a business that makes and shares profits. The comparison is narrower: in both cases, assets are meant to stay dedicated to a purpose, not sold for private gain. So the amendment copies the *technique*: the Code defers to the law that governs locked co-ops, and that law, the bank's statute, says what can be sold to whom.
 **Is it constitutional?** Bankruptcy laws must be "uniform." In 1982 the Supreme Court struck down a law written for the workers of one bankrupt railroad, calling it "nothing more than a private bill." But it said a bankruptcy law must "apply uniformly to a defined class of debtors," and that its ruling didn't impair Congress's ability "to define classes of debtors and to structure relief accordingly" ([*Railway Labor Executives' Ass'n v. Gibbons*, 455 U.S. 457](https://www.law.cornell.edu/supremecourt/text/455/457)). A rule for every locked co-op, defined by what it is and not by name, is that kind of class. The parts that reach sales outside bankruptcy (point 9 below) rest on Congress's power over interstate commerce instead.
 ## What the amendment does
 ### Who it covers
 **1. Every locked co-op on the federal register.** The bank's statute sets up a public register of locked co-ops. A co-op is covered while its lock is on the register. The register decides the question. A notice in the state filing system lenders already search (a UCC financing statement) points to it, but if that notice lapses, the co-op stays locked.
 **2. Old debts are protected.** A lender already secured on the co-op's assets when the lock is registered has to consent in writing before registration. For a business that converts to a co-op, that's part of the buyout deal ([When an Owner Wants to Sell to the Workers](buyouts.md)).
 **3. Creditors who never chose to lend are made whole for the lock's cost.** Some creditors never had a chance to price the lock in: people the co-op injured, tax agencies, and creditors whose unsecured claims came before registration. If the lock makes them recover less than they would have from an open sale, the federation fund pays them the difference. For co-ops outside a federation, the bank pays it. Locked co-ops must also carry standard liability insurance, so injured people are mostly paid by insurers anyway.
 ### What can be sold, and to whom
 **4. The Code defers to the lock.** In every chapter, and in plan sales too, the lock's limits hold. The estate takes the co-op's property subject to them. A sale "free and clear" can't strip them. The lock agreements can't be rejected as ordinary contracts. And no plan can override them. The detailed sale rules live in the bank's statute, as the rules for charities live in state law.
 **5. Workers can keep the business running while it's sold.** Argentina changed its bankruptcy law in 2011 to do this. The trustee must report within 20 days on whether the business can keep operating. Workers making up two-thirds of the staff can ask to run it as a co-op while the case goes on, with a plan due within 20 days. The judge decides, and sets a time limit that can be extended once ([Law 26.684, amending articles 190 and 191 of the bankruptcy law](https://www.argentina.gob.ar/normativa/nacional/ley-26684-183856/texto)). The amendment adapts this: workers can ask to run the business as a new co-op, under court supervision, while it's up for sale.
 **6. The whole business goes only to a qualified co-op.**
 - **A qualified bidder** is a locked co-op whose members do at least three-quarters of its work hours, and whose outside money meets the limits in [Capital, After](capital.md): no vote, at most 15 years. A co-op formed by the failed co-op's own workers qualifies from the start. So does the federation. A shell set up by a conventional company doesn't.
 - **The minimum price is what the assets would bring sold off piece by piece,** set by an appraiser the court appoints. A higher floor, like the full value of a running business, could stop any co-op from buying and force a breakup, which is worse for workers and creditors both. The co-op bidders compete in open bidding, so the price is usually higher than the floor.
 - **No buying back your own failure cheaply.** People who managed the co-op in the two years before it failed can't get bank financing to buy it ([The Lock](the-lock.md#when-a-co-op-goes-bankrupt)). In a reorganization where the members are running the case and also bidding, an independent officer runs the sale.
 - **The time limit is 90 days from when the sale is announced, or from when the workers' co-op files its plan, whichever is later.** The court can extend it once if a qualified bidder is lining up financing.
 **7. Workers can pay with what they're owed.** A secured lender can already bid using its claim instead of cash ([§ 363(k)](https://www.law.cornell.edu/uscode/text/11/363)). Argentina lets workers do the same: a workers' co-op can count the wage and severance claims its workers voluntarily hand over toward the price, at their full amount, and the handover happens at a hearing before the judge (Law 26.684, article 27, adding article 203 bis). The amendment does this too, within limits:
 - **Only claims workers choose to hand over,** in writing. Workers who don't join the new co-op keep their claims.
 - **At full value, up to the amounts bankruptcy law already puts first:** unpaid wages and benefit contributions earned in the last 180 days, up to $17,150 per worker for wages ([11 U.S.C. § 507(a)(4) and (a)(5)](https://www.law.cornell.edu/uscode/text/11/507)). That's a deliberate transfer from other creditors to workers, capped per person, as Argentina chose.
 - **The insurance pool's claims count too.** The [savings insurance pool](savings-guarantee.md) pays workers' final wages quickly. Normally, whoever pays a wage claim loses its priority ([§ 507(d)](https://www.law.cornell.edu/uscode/text/11/507)). Without a fix, that would leave workers nothing to bid with. So the pool keeps the priority, and it can hand the claims it paid to the workers' co-op for its bid, to be repaid by the new co-op over time.
 - **No last-minute claims.** Pay deferred by a vote in the 180 days before filing ranks as an ordinary claim, not a priority one, and can't be used to bid.
 **8. If no qualified co-op buys it, the pieces go to anyone, but not the whole.** No buyer, together with anyone financially tied to it, may end up with substantially all of the business. The brand, the core technology or the main customer contracts count as substantially all, whatever their size, as the lock already says. A buyer of the pieces who hires more than a third of the members within two years owes the difference between what it paid and what the running business was worth, as set by the court's appraiser. The sale order says so up front. That money goes to the co-op's creditors, not the federation fund.
 **9. Lenders can't sell around it outside court either.** The same rules apply to any transfer of substantially all of a locked co-op's assets because it can't pay its debts: a lender's sale or taking of its collateral, a state receivership, an assignment for the benefit of creditors, or a tax sale. The [model state law](durability.md#federal-test-state-copies) adds that a sale following these rules counts as "commercially reasonable" under the UCC, so lenders aren't penalized for following them.
 ### When the co-op reorganizes
 **10. A reorganized co-op stays a co-op, and creditors are treated as they would be anyway.**
 - **Only working members hold votes.** A plan can give creditors new debt, or voteless claims on the terms in [Capital, After](capital.md), but never ownership, and no loan terms giving a lender approval over the co-op's management or strategy. The rule requiring a ban on voteless shares doesn't apply.
 - **Small co-ops follow the ordinary small-business rule.** In Subchapter V, owners of any small business can keep it by paying creditors all of its disposable income for three to five years. A co-op gets the same deal, no better. To stop members shrinking that income by paying themselves more, disposable income is worked out with members' pay at the going rate ([Investing for the Long Run](the-long-run.md#the-rules)), and raises in the two years before filing are reversed.
 - **Larger co-ops pay creditors the business's full value.** If a group of creditors votes against the plan, they must get at least what the business would sell for on the open market, as if the lock didn't exist, in cash, new debt or voteless claims. That's what the absolute priority rule protects in any company. Members can keep a co-op they can't sell, but not at their creditors' expense.
 - **Members' own accounts go first.** What members have in their capital accounts is wiped out before creditors lose anything. Members were taxed each year on those allocations, so this is a real loss, and it's the cost of being an owner ([Member Capital Accounts](capital-accounts.md#protecting-the-co-op-and-the-people-who-stay)).
 ### Everything else
 **11. Former members are paid before current members.** A former member's payout is a fixed debt the co-op owes ([Member Capital Accounts](capital-accounts.md#how-its-paid-out)). It ranks behind every other unsecured creditor, but ahead of current members' accounts. It isn't pushed down to the bottom as if it were a shareholder's claim ([§ 510(b)](https://www.law.cornell.edu/uscode/text/11/510)). Anyone who left within a year before the failure has their balance recalculated first, as the insurance pool already does ([Protecting Members' Savings](savings-guarantee.md#closing-the-loopholes)).
 **12. The lock-holder can go to court, carefully.** The lock-holder can take part in the case. If the trustee declines to challenge a deal the co-op made with insiders before it failed, the lock-holder can ask the court's permission to challenge it, and pays the other side's costs if the court finds the challenge frivolous.
 **What it doesn't do.** Unlike charities, locked co-ops *can* be forced into bankruptcy by their creditors, and a failed reorganization *can* be turned into a liquidation. A business that can't pay its debts shouldn't be able to shelter behind the lock. The amendment only decides who can buy it, not whether it can fail.
 ## What it costs, and who pays
 - **Lenders get back less when a co-op fails.** The whole business can only go to a co-op, so it may sell for less than on the open market. Lenders who lend after the lock is registered know that, and they'll charge for it, in higher rates or more collateral.
 - **The bank bears it first.** The bank is usually the biggest lender, so the pilot publishes its recovery rate on failed loans ([The Pilot, in Numbers](pilot-spec.md#what-gets-measured)). That shows what the lock costs.
 - **The federation fund bears the rest.** Creditors who never chose to lend are paid the lock's cost from the fund. That's a real call on money the co-ops put in.
 - **Other lenders may lend less, or not at all.** Some banks will refuse locked co-ops, or lend only against equipment they can take back. Lenders willing to fund a failing co-op through a rescue may be harder to find, because they can't sell the business to anyone. That's a real cost, and it's part of why the model needs its own bank.
 - **Workers' claims come ahead of other creditors when workers bid.** That's a choice to favor keeping a business running in its workers' hands. It's capped per worker, and it's paid for by other creditors.
 - **Some viable businesses will still be broken up.** When no co-op can buy a failed co-op whole, a conventional buyer who would have kept it running and kept the jobs can't. While the co-op sector is small, this will happen. Whether to allow a conventional buyer as a last resort, with any surplus going to the federation fund, is an open question ([Open Problems](open-problems.md)).
 ## Draft text
 For readers who want to see what this could look like in the statute, here is a first draft of the core Bankruptcy Code changes. The detailed sale rules (points 5 to 9) go in the bank's own statute. This is a starting point for lawyers, not finished legislation.
 > **Sec. 101 (new definition).** The term "locked cooperative" means an entity entered, as of the date of the filing of the petition, on the register of locked cooperatives kept under [the bank's authorizing act].
 >
 > **Sec. 541(g).** Notwithstanding subsection (c)(1) and any other provision of this title, property held by a debtor that is a locked cooperative may be transferred only as permitted by the nonbankruptcy law governing locked cooperatives, as if the debtor had not filed a case under this title.
 >
 > **Sec. 363(q).** In a case in which the debtor is a locked cooperative, (1) the trustee may use, sell, or lease property under subsection (b) or (c), including under subsection (f), only in accordance with the nonbankruptcy law governing locked cooperatives; (2) the rights of a lock-holder under that law are not an interest that may be sold free and clear under subsection (f); and (3) section 365 does not permit rejection of any agreement required by that law.
 >
 > **Sec. 507(d) (amended).** Insert at the end: "except that an insurance pool established under [the bank's authorizing act] that pays a claim of a kind specified in subsection (a)(4) or (a)(5) is subrogated to the holder's right to priority."
 >
 > **Sec. 1123(e).** Notwithstanding subsection (a), a plan for a debtor that is a locked cooperative (1) may not provide for any transfer of property, merger, consolidation, or amendment of the debtor's charter except as permitted by the nonbankruptcy law governing locked cooperatives; and (2) need not comply with subsection (a)(6) as to any nonvoting interest permitted by that law.
 >
 > **Sec. 1129(a)(17).** If the debtor is a locked cooperative, (A) all transfers of property under the plan are made in accordance with the nonbankruptcy law governing locked cooperatives; and (B) no equity security carrying voting power is issued to any entity other than members who work for the reorganized debtor.
 >
 > **Sec. 1129(b)(2)(B)(iii).** In a case in which the debtor is a locked cooperative, membership in the reorganized debtor held by persons who work for it is not property received or retained on account of a junior interest, if each holder of a claim of the class receives or retains under the plan property of a value, as of the effective date of the plan, not less than the amount such holder would receive if all of the debtor's property were sold as a going concern without regard to section 541(g).
 ## What this doesn't solve
 - **It needs Congress, and a later Congress can undo it.** The lock's other layers hold if the bank's law is repealed. This one doesn't ([Making It Last](durability.md)).
 - **Courts will test it.** Treating membership as something other than property the owners keep is new in bankruptcy law. The draft ties it to paying dissenting creditors full open-market value, which answers the fairness point, but the first cases will still be fought.
 - **Reaching lenders' sales outside court is a federal reach into state law.** It rests on Congress's power over commerce, not bankruptcy, and it will be challenged. States that adopt the model law make it much safer.
 - **Lenders can route around it.** A co-op that leases its equipment, or sells its unpaid invoices to a lender, doesn't own those assets, so the lock doesn't cover them. Co-ops already report new leases to their members ([Investing for the Long Run](the-long-run.md#running-it-down)). How much of a co-op's business can sit outside the lock this way isn't limited.
 - **Workers still have to find the money fast.** Keeping the business running and counting workers' claims toward the price help. But a new co-op still needs a lender within a few months, and whether the bank or federation will stand ready isn't settled.
 - **The register has to exist and be trusted.** It's a new federal job, and every lender to a co-op will have to check it.
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 ---
 title: Help Before the First Loan
 section: Growing the Sector
 order: 67
 summary: The pilot's hardest job is getting enough good co-ops started, so it tests, by lottery, whether serious help before launch creates more of them that last, and asks founders for a small stake they can pay in work instead of cash.
 ---
 # Help Before the First Loan
 The pilot aims to fund about 400 new co-ops in five years, about 80 a year. The whole American worker co-op sector grew by about 50 a year over the last decade, after counting the co-ops that closed ([The Pilot, in Numbers](pilot-spec.md#why-about-400-co-ops)). If good groups don't show up, the bank has nobody to lend to, and the whole test stalls.
 The pilot already tests help *after* the first loan, by lottery ([the support lottery](pilot-spec.md#the-support-lottery)). This page is about help *before* it: whether serious support for groups who want to start a co-op makes more of them succeed in starting one that lasts, and whether founders should put in something of their own.
 ## What we know
 **Mondragon's help started before a co-op existed.** When a group came with an idea, its bank picked one of them to be the manager, paid that person a salary while a team studied whether the business could work, and later lent the new co-op enough to cover its losses for its first two years ([Has This Been Tried?](precedents.md#mondragons-bank-caja-laboral)). Nobody knows how much of Mondragon's success came from that help and how much from the loans.
 **Light training doesn't last.** At the time, the largest randomized trial of entrepreneurship training ever run was America's GATE project. It assigned 4,197 people who wanted to start businesses to be offered free training or not. People not offered it could still find training elsewhere, so the real difference was modest: about 9 more hours of classes and advice, at about $1,321 per person. Six months later, the trained group was about 5 percentage points more likely to own a business. By 18 months the gap in who currently owned a business was small and no longer clear, and by five years there was no clear difference ([Fairlie, Karlan and Zinman, 2012](https://www.nber.org/papers/w17804)).
 **Heavier help is expensive, and nobody has measured what it does.** New York City has funded community groups that help people start worker co-ops since 2015. Its partners often work with a group for several years. In the program's seventh year, a pandemic year, it cost about $3.1 million, and 11 new co-ops formally launched or converted, meaning they got a tax ID, formation papers and permits. Another 21 were in progress ([NYC Small Business Services, 2021](https://www.nyc.gov/assets/sbs/downloads/pdf/about/reports/worker_coop_report_fy21.pdf)). That's about $280,000 for each co-op launched that year, though the program also helps existing co-ops, so it isn't a true cost per co-op. And there's no comparison group, so nobody can say how many of those co-ops would have started anyway.
 So light help is cheap and fades, and heavier help might work but hasn't been tested. That's exactly the kind of question a lottery answers.
 ## The founding lottery
 ### Who can apply
 - **A group of at least three people** who plan to work in the business, with an idea and a rough sense of what it would take. There's no loan application yet.
 - **Or a sponsor applying for a group.** Unions, worker centers, community groups and existing co-ops often bring groups together. Many co-ops start that way. They can apply on a group's behalf, and results are reported by who sponsored the group.
 - **A short screen, run by the reviewers, not the bank,** checks that the people are real and intend to work there, and that the business is legal. Any government ID is enough, including a taxpayer ID number for people without a Social Security number, or a consular or city ID.
 - **One entry per person for the whole pilot.** Groups that share a member, a family, an address, an idea or an organizer go into the draw as one unit. Groups that lose the draw can't re-enter under a new name.
 ### The draw
 The reviewers, not the bank, draw half the groups by lottery, using a method filed in advance. The draw is balanced by industry, region, and the founders' gender, race and wealth. As with the support lottery, groups agree to the lottery when they apply, and an independent research ethics board approves the design. Groups that weren't drawn are offered the same help once the two-year comparison window ends.
 ### What the helped groups get, for up to a year
 - **A stipend for one founding member** for up to six months, so that one of the group can work on getting the business ready full time. That's how Mondragon did it: it paid one of the founders, not an outsider.
 - **A feasibility study** by an outside specialist: is there a market, what will it cost, and can it pay a loan?
 - **Legal setup, bylaws and a business plan,** in the group's own language, with interpreters if needed.
 - **Specialists come from a vetted panel,** assigned by the reviewers, not picked by the group or by anyone who referred it. No specialist can be a member, a member's relative, or someone who referred the group. For three years they can't sell paid services to a group they helped, the same rule that applies to the support lottery's advisers. No one person or organization can advise more than a set number of helped groups.
 - **About $40,000 per group in all.**
 ### What the other groups get
 The same public help any would-be business owner can already get, like the Small Business Administration's free counseling centers, and the bank's published standards. They can apply for a loan whenever they're ready.
 ### What it doesn't change
 Help doesn't lower the bar. Every group applies for its loan through the same underwriting. The help doesn't cover early losses. A co-op that needs money to get through its first years borrows it from the bank at market rates, like any other loan.
 ### How big
 About 250 groups in each half, so $10 million for the help. With groups that size, the lottery has an 80% chance of detecting a difference of about 12 percentage points in how many groups end up running a co-op, for example 25% against 37%. Smaller effects might be missed.
 **The money comes from the loan budget.** Of the roughly $300 million set aside for loans, $10 million pays for this help instead, which leaves the pilot's cash cushion and running costs untouched. The pilot's capped help budget is $30 million in all: $20 million after the first loan and $10 million before it ([The Pilot, in Numbers](pilot-spec.md#how-much-money-and-why)). Every dollar counts against the bank in the [money test](pilot-spec.md#the-decision-rule), the same as help after the loan.
 ## What gets measured
 - **Are they running a co-op?** The main result: the share of all groups in each half that have a co-op operating two years after the draw, with at least three members and a minimum level of sales, however it was financed. It's measured from government business records by the reviewers, not decided by the bank. So the result can't come from helped groups simply being coached to pass the bank's own underwriting.
 - **Are they still running at year four?** The share of all groups in each half with a co-op still open and paying fairly four years after the draw. That counts every group, so help that pushes weak groups into launching and failing shows up as a cost, not a benefit.
 - **What did it cost?** The public cost for each extra co-op the help created, and for each extra co-op still open at year four. At the smallest effect the lottery can detect, about 30 extra co-ops for $10 million, that's roughly $330,000 each. A ceiling is filed in advance. Above it, the help isn't recommended for any larger program, however many co-ops it creates.
 - **Who did it reach?** Founders' prior earnings, wealth, gender, race, immigration status and language, in each half.
 - **Where else did groups get help?** Groups report other help and funding they used, so any effect from help found elsewhere, or co-ops simply moving from other lenders to this one, can be estimated.
 The co-ops from both halves count in the main test, and the main result is also reported without the helped half's extra co-ops. So help can't quietly change what the main test measures.
 ## Should founders put in money of their own?
 Mondragon required it: its founders put in a fifth of the start-up money. Under Italy's Marcora program, which helps workers buy out closing firms, workers put in their own money too, often from their severance pay and unemployment benefits ([Has This Been Tried?](precedents.md)). A stake makes founders care what happens to the loan. But a cash buy-in shuts out workers with no savings, who are the people co-ops most often serve.
 **The model's answer: a small stake, payable in work.** The founding members together put in at least 5% of the first loan. They can pay it in cash, in work, or both.
 - **Work is valued at the local median wage for the job**, from the government's wage survey, not at whatever pay the founders plan to give themselves.
 - **Only hours logged at the time count,** from the date of application, and a specialist from the panel or the reviewers checks them. Hours paid by the stipend don't count.
 - **Only work before the co-op is formed can be unpaid.** After that, founders are its employees and are paid at least the minimum wage. Only the difference between the minimum wage and the median wage counts toward the stake ([Owners Are Still Workers](labor-law.md#founders-unpaid-work)).
 - **It's a real stake.** Unpaid work is recorded as back pay the co-op owes, ranked behind the bank ([The Founder Problem](founder-problem.md#the-tools)). Founders lose it if the co-op fails.
 For a typical first loan of $500,000, that's $25,000 in all. Five founders could meet it with about $5,000 each, or with a few months of evenings and weekends. Three founders would need about $8,300 each, or more hours.
 **What the stake does and doesn't do.** It shows commitment, and it makes sure founders have something to lose. It doesn't stop fraud. A group that plans to take the money and disappear gives up only work it never intended to be paid for. The defense against that is elsewhere: loans paid out in stages as the business hits milestones, and the rules in [Guarding the Pilot](pilot-safeguards.md).
 ## What this doesn't solve
 - **It tests help for groups that come forward.** Many workers never think of starting a co-op at all. Sponsors like unions and community groups help reach them, and results are reported by sponsor. But the lottery can't test outreach to people nobody reaches.
 - **A year's help may not be enough.** New York's partners often work with groups for several years. If the effect needs longer, this design will understate it.
 - **Groups that lose the draw may find help elsewhere.** That makes the helped half look less different, so the result may understate the real effect, as happened in GATE.
 - **Four years of survival is a small sample.** Only the groups that launch can survive, perhaps 60 to 90 in each half. So the year-four result will be rough.
 - **The work stake still costs time.** Founders who can't spare unpaid hours, because they need every paid hour they can get, still face a barrier. The stipend in the helped half partly makes up for that. Outside it, nothing does.
 - **Help only for co-ops will be called unfair competition.** It's a research cost, time-limited to the pilot, published each year, and counted against the bank. That's the honest answer. It won't stop the attack.
 - **$10 million is $10 million.** If the help doesn't create more co-ops that last, the pilot will have spent it to learn that.
@@ -0,0 +1,118 @@
 ---
 title: When an Owner Wants to Sell to the Workers
 section: Growing the Sector
 order: 60
 summary: Owners who choose to sell their company to its workers can get a loan from the bank to do it, on a separate track with its own money and its own test, so the sale can't overcharge the workers or muddy the main experiment.
 ---
 # When an Owner Wants to Sell to the Workers
 This model buys nobody's company. But some owners *want* to sell to their workers. Most often, they're retiring, have no family member who wants the business, and would rather it stay in the town with the people who built it than go to a competitor or a private equity fund.
 American banks already lend for some of these sales, as the evidence below shows. But those are mostly sales to employee stock ownership plans (ESOPs), trusts that come with large federal tax breaks and don't give workers one member, one vote. Sales to a real worker co-op, especially of smaller firms, are harder to finance. Lenders usually want personal guarantees, which a whole workforce can't give ([Why a new bank](pilot-spec.md#why-a-new-bank-not-existing-programs)).
 So should [the bank](the-bank.md) lend for these sales? This page's answer is **yes, but on a separate track**, with its own money, its own rules and its own test, and alongside private lenders wherever they'll join in. The evidence for buyouts of healthy firms is among the strongest in the co-op literature. The ways they go wrong are also well known, and every rule below answers one of them.
 ## The case for it
 **Healthy firms sold to their workers survive.** In France, five years after a healthy business is handed over to its workers as a co-op, 90% are still running. For French co-ops as a whole the figure is 79%, and for French businesses generally it's 61%. Even struggling firms taken over by their workers reach 76% (France's co-op federation, cited in a [2025 report to the French National Assembly](https://www.assemblee-nationale.fr/dyn/opendata/RINFANR5L17B1696.html)). That isn't a like-for-like comparison. The general figure includes brand-new businesses, and firms chosen for a handover were already doing well. Still, it's hard to read as a warning.
 **Loans for these sales get repaid.** A study of 1,232 bank loans for ESOP buyouts at three large banks, from 2009 to 2013, found only 0.2% a year defaulted in a way that cost the lender money. By comparison, loans to mid-sized companies generally defaulted at 2% to nearly 4% a year over similar periods, though the two figures don't count defaults in quite the same way ([NCEO, 2014](https://www.nceo.org/hubfs/assets/pdf/Default-Study-full.pdf)). So the comparison only suggests something. It doesn't prove it.
 **It can grow the sector fast.** Britain created a simple way for owners to sell to a trust for their employees in 2014, with a tax break. By January 2025 there were about 2,000 of these employee ownership trusts, and one estimate puts them at 6% of all business sales in 2024. Most are doing well. Very few have failed, mostly in construction, where profit margins are thin ([Pendleton and Robinson, 2025](https://eprints.whiterose.ac.uk/id/eprint/223994/)).
 **It reaches workers the startups don't.** A startup co-op begins with a handful of people. A buyout brings in a whole existing workforce at once, often in trades where new co-ops rarely start.
 **A caution about all of this evidence.** None of it comes from exactly this design. ESOPs and British trusts come with big tax breaks, and neither gives workers one member, one vote. Italy's buyouts under the Marcora Law also show high survival, 87% still operating, but most were rescues of firms in crisis, and many were only a few years old when counted ([Has This Been Tried?](precedents.md#italys-co-op-funds-coopfond-and-the-marcora-law)). The evidence shows that selling a healthy firm to its workers can work. It doesn't show that this particular track will.
 ## What goes wrong
 **Workers overpay.** The seller usually knows the business best and wants the highest price. In one American case, the trustee who was supposed to protect the workers approved a price after a half-hour meeting about the valuation, and the workers' plan overpaid for Constellis, a private security contractor, by almost $30 million. A federal appeals court upheld the judgment ([Brundle v. Wilmington Trust, 4th Cir. 2019](https://www.ca4.uscourts.gov/opinions/171873.P.pdf)). In a British case, a founder gave his adviser rosy forecasts, the adviser raised them further, and the managers who had to run the company were given no time to read the terms. The company nearly failed under its payments to the founder and was saved only by renegotiating (Pendleton and Robinson).
 **The seller keeps control.** Under Britain's original rules the seller could appoint the trustees who were meant to act for the workers. Britain changed that in 2024. Now the seller and their associates can't make up half or more of the trustees, and the trustees must make sure the price is no more than market value ([Pendleton and Robinson](https://eprints.whiterose.ac.uk/id/eprint/223994/)).
 **The debt comes out of the workers' future.** Almost nine in ten British trust sales are paid for by the company itself, out of future profits, over about six years (Pendleton and Robinson). That's the workers' money, paying the seller. Most firms manage it, but it can squeeze out investment and pay.
 **Tax breaks get expensive and attract the wrong sellers.** Britain let owners who sold to a trust pay no capital gains tax at all. By 2021–22 the tax break cost £600 million a year, and it was forecast to reach £2 billion by 2028–29. One accounting firm puts that at about 20 times what was originally expected ([Scholes Chartered Accountants, 2025](https://www.scholesca.co.uk/blog/why-did-the-autumn-budget-change-employee-ownership-trusts)). In November 2025 the government cut it back, so that only half of the gain is tax-free ([Charles Russell Speechlys, 2025](https://www.charlesrussellspeechlys.com/en/insights/expert-insights/corporate/2025/employee-ownership-trusts---government-reduces-capital-gains-tax-relief-on-employee-ownership-trusts-in-2025-budget/)). The researchers noted that a big tax break "could attract owners who have little or no interest in employee ownership."
 **A trust isn't a co-op, and it isn't forever.** In a British trust, the workers usually don't vote one member, one vote. The company is typically run with an ordinary management hierarchy, and a trust can later sell the company. Nothing like [the lock](the-lock.md) stops it.
 **Rescues of failing firms lose money.** Uruguay's public fund lost almost 90% of its loans, mostly on firms that had already failed ([The Pilot, in Numbers](pilot-spec.md#two-warnings-from-real-life)).
 ## The rules
 ### Healthy firms, willing sellers, no new tax break
 - **Only healthy businesses.** At least three years of profits, with the latest year audited by an outside accountant and every year matching the tax returns. Sales to the seller's own other businesses or relatives don't count toward those profits. The seller must have owned the business for at least three years, and it can't be in bankruptcy or behind on taxes. Rescues stay out, as they do for [the rest of the pilot](pilot-spec.md#who-can-borrow).
 - **The owner starts it, in writing.** The bank never approaches an owner, and neither do the advisers or groups the pilot pays. The owner can back out at any time before closing.
 - **No new tax break.** American law already lets some owners put off capital gains tax when they sell to an ESOP or a worker co-op. It applies to one kind of corporation (a "C corporation"), requires the workers to end up owning at least 30%, and requires the seller to reinvest the money in other American companies ([26 U.S.C. § 1042](https://www.law.cornell.edu/uscode/text/26/1042)). This model leaves that rule alone and adds nothing to it. The bank's only offer is that it will lend. That keeps out most owners who are only after a tax deal, and it keeps the cost to the public from growing the way Britain's did.
 - **Private lenders go first.** The bank lends alongside a private or community lender that takes at least a quarter of the main loan, on the same terms. If no lender will join, the bank can lend alone only after two lenders have turned the deal down in writing. Those deals are marked and reported separately. If private lenders join almost every deal, that's a sign the bank isn't needed for buyouts, and the results will show it.
 ### A fair price
 - **Appraisers come from a panel, in rotation.** An independent appraiser, drawn in turn from a panel the bank keeps and paid by the bank, values the business under standard professional rules. The value is what the business is worth on its own, to a buyer who'll run it as it is. It doesn't include the premium a competitor might pay to combine it with their own business, since the workers can't get that value out of it.
 - **Profits are checked, not taken on trust.** Before the appraisal, an outside accountant restates the profits as they'd look under new owners. The owner's own job is counted at a normal salary for that work. Upkeep and equipment the owner put off are counted as costs. One-off gains are taken out.
 - **The seller can challenge it.** The seller can order a second appraisal from the panel. If the two are more than 10% apart, a third panel appraiser settles it, and that figure is final. The price can't be higher than the final figure.
 - **Appraisers are checked too.** One deal in ten, picked at random, is re-appraised after closing by a different appraiser. Appraisers whose values run consistently high are dropped from the panel.
 - **Everything the seller gets counts as the price.** For five years after the sale, every payment to the seller, their family or their other companies counts toward the price: salary, consulting fees, rent, royalties, payments for not competing. The only exception is a payment set at a going rate by an independent appraiser. If the seller keeps the building, the co-op gets a lease of at least ten years at appraised rent and the right to buy it at appraised value. Patents, brands, customer lists and a normal level of working cash all come with the business.
 - **The seller tells the truth, in writing.** The seller discloses in writing any big customer or contract that's at risk, any lawsuit, and anything else a buyer would need to know. If the disclosure turns out to be false, the co-op can cut what it still owes the seller by the damage, and sue for more.
 - **The workers get their own adviser**, chosen by the workers (or their union, if they have one) from a list the bank approves, and paid from the buyout track's own budget. The adviser explains the price, the debt and the risks in plain terms. The workers get at least 30 days with the full terms before they vote.
 ### The seller shares the risk
 - **At least 20% of the price is paid to the seller over time**, and only after the bank's loan payments are made. If the price was too high and the business struggles, the seller's payments stop before the workers' jobs do.
 - **That share shrinks if the forecast was wrong.** If profits in the first three years come in more than 20% below what the appraisal assumed, the seller's share is cut by a formula written into the sale. That puts a price on selling just before a drop the seller saw coming.
 - **The seller is protected like a lender, and only like a lender.** The seller's share carries a legal claim on the business's assets, behind the bank's, and the right to be paid. It carries no say in how the co-op is run.
 - **Pay isn't cut to pay the seller.** In any year the co-op cuts its members' pay rates below where they were before the sale (after inflation), the seller's payments wait. They're owed later, not cancelled.
 - **The debt has to fit the business.** The bank lends only if the business's checked profits cover all the loan payments, the bank's, the private lender's and the seller's, plus the cash members need to pay tax on their profit shares ([Member Capital Accounts](capital-accounts.md#where-each-years-profit-goes)), with a real margin to spare. The margin (for example, profits of at least 1.25 times the payments) is part of the lending standards filed before the first loan ([Making It Last](durability.md#what-a-new-board-cant-change)).
 ### The workers decide
 - **Who votes.** Every worker on the payroll 12 months before the owner applied, and still there, can vote, including part-time workers and agency temps who work there regularly. The seller and their family can't. Nobody can be laid off, reclassified or offered money tied to how they vote in that time.
 - **How they vote.** By secret ballot, run by an independent election body, with a neutral ballot and after the 30 days with the full terms. The sale needs a majority of *everyone eligible*, not just of those who turn out.
 - **Unions keep their place.** A union contract carries over to the co-op. Becoming a member doesn't take away anyone's right to organize.
 ### Then they govern
 - **Everyone becomes a member unless they say no.** At closing, every worker is enrolled as a member unless they opt out in writing. The buy-in is kept small and can be paid by payroll deduction, so no one's shut out for lack of savings. Workers who opt out can't be fired for it, and can join whenever they like.
 - **The membership rule, with a fair start.** New hires follow [the lock](the-lock.md)'s usual rule: membership after at most 12 months. For the first three years, workers who were there before the sale and chose not to join don't count against the rule that members must do three-quarters of the work hours. After that, the normal rule applies, as it does for every co-op the bank funds.
 - **One member, one vote, from day one.** A converted firm meets the full [co-op definition](worker-ownership.md), unlike a British trust. It can keep managers, but they answer to a board elected by the members. The first board election happens within 90 days of closing.
 - **The seller's control ends at the sale.** The seller can stay on as a paid adviser for up to two years, and the members can end that by vote at any time. If the seller works there, they can join as a member, with one vote like anyone else. Neither they nor their family or associates can sit on the board, hold a special share or choose who governs.
 - **Paying off the debt builds the members' accounts.** Loan payments come out of profit, but they aren't a cost in the co-op's books. So the profit that pays down the loan is still credited to members' [capital accounts](capital-accounts.md) under the usual split, and paid out on the usual schedule. The workers who pay for the business build up a claim on it.
 - **Help with the change.** Moving from one owner to a members' democracy is hard. The French parliament's report calls support and training for newly elected leaders essential. Converted firms get governance training and the hands-on help that [the support lottery](pilot-spec.md#the-support-lottery) tests, paid from the buyout track's own budget.
 - **Who benefits is published.** Who became a member, who sits on the board and how profit shares are split, by race, gender and job, the same as for [the startups](pilot-spec.md#what-gets-measured).
 ### Locked, like every co-op the bank funds
 A converted firm accepts [the lock](the-lock.md) and stays a co-op forever. This is the biggest difference from Britain's trusts. The seller gets a fair price once. After that, nobody can cash in the business again. Every seller signs knowing that.
 The lock costs the seller something too, and they should know it. If the co-op fails while the seller is still owed money, the business can't be sold whole to an ordinary buyer. It can only go to another co-op, or be sold off in pieces. So the seller will likely get back less than from a failed conventional firm. That's one more reason to set the price where the business can carry it.
 ## Why a separate track
 Buyouts would make the pilot's main result look better than it deserves. A business that has already survived for years is far more likely to keep surviving than a new one. If buyouts were mixed into the main test, the co-ops' survival would look better whether or not worker ownership had anything to do with it. That's why [the pilot](pilot-spec.md#who-can-borrow) already scores existing firms separately.
 So buyouts get:
 - **Their own money.** $100 million, set aside in the same one-time charter, separate from the $350 million for new co-ops. That raises taxpayers' worst case from $350 million to $450 million, and the model says so. Up to $5 million of it pays for the workers' advisers and governance help. Buyout loans can never draw on the startup money or the startup help budget, so they can't shrink the main test.
 - **Their own limits.** The same $3 million lifetime limit, which covers every business owned by the same seller or group, so one owner can't split a company into pieces to get around it. The same caps on industries and places apply. With a private lender's share and the seller's share on top, that means companies priced up to about $5 million: small and mid-sized firms. Bigger sales can use the ESOP market that already exists.
 - **Their own test, judged at year 12 with the rest.** It has two parts, and both must pass:
  1. **The money.** The buyout money has to earn at least the Treasury rate after all losses and costs, and its losses can't be higher than the loss rate the bank publishes before its first buyout loan.
  2. **The pay.** Among converted firms still open, members' median pay per hour can't have fallen below where it was before the sale, after inflation. A track that gets repaid by cutting its members' pay hasn't passed.
  The two tracks pass or fail on their own. A good buyout record can't rescue a failing startup test, and a bad one can't sink a passing one.
 If the bank's share of a typical deal is about $1.5 million, half the limit, $100 million funds roughly 60 to 70 buyouts. That's too few for the tight survival comparison the startup test uses. So survival is published and compared, but as evidence, not as a pass-or-fail line. The comparisons are with similar businesses bought by conventional owners using government-backed small-business loans, and with ESOP buyouts, which federal pension filings make it possible to follow. The terms of every deal are published: the price, the appraisals, the loans and the seller's share.
 **Expect opposition.** Business brokers and private equity funds, who make money when owners sell, may see a public lender as a competitor. Italy's main employers' association got part of its worker-buyout program suspended by the EU ([Has This Been Tried?](precedents.md#italys-co-op-funds-coopfond-and-the-marcora-law)). Keeping the bank at market rates with no tax break is the best defense, because it leaves little to call unfair. The rest is in [Making It Last](durability.md).
 ## What this doesn't solve
 - **The workers pay for what they helped build.** A fair price is a price for the owner's years of ownership, and the workers pay it out of profits their own work will produce. This model accepts that, because the alternative is taking the business, and it doesn't take anyone's business. The rules keep the price fair. They can't make it free.
 - **The seller always knows more.** Written disclosures, checked profits and a shrinking seller's share make hiding problems costly. They can't make it impossible.
 - **A fair price is a matter of judgment.** Appraisals are estimates. The rules make overpaying harder and put the seller's own money behind the price, but they can't make valuation exact.
 - **The vote can be pressured.** A secret ballot, a neutral ballot and a majority of everyone eligible help. They can't stop a well-liked owner or manager from leaning on people in the break room.
 - **One failure can become a story.** A single buyout that goes wrong will make a better headline than sixty that don't. Publishing the expected loss rate in advance, and every deal's terms, lets anyone check whether a failure was bad luck or bad lending. It doesn't stop the headline.
 - **"Forever" is a lot to ask of a business that wasn't founded that way.** Some owners won't sell under the lock, and some critics will say it's wrong to lock a firm its members never chose to lock at founding. Whether the lock should protect the co-op form or only its value is an open question for every co-op, not just these ([Open Problems](open-problems.md)).
 - **It may pull good founders away from co-ops.** A founder who expects to sell to their workers one day can start a conventional company, keep full control for 20 years, and then sell at a fair price. That may be a better deal than founding a co-op ([The Founder Problem](founder-problem.md)). For the model's goal, more workplaces owned by the people who work there, it's still a win. But it could leave fewer strong founders for the startup test.
 - **Sixty buyouts is a small sample.** The track shows whether the loans can be repaid safely without cutting pay. It can't show much more than that about whether the workers who were bought in end up better off.
@@ -17,7 +17,7 @@ Every member has a personal account on the co-op's books. It works like a saving
 - **Each year, part of your share of the profits goes into it** instead of being paid out as cash.
 - **It earns interest.**
- **It's paid out to you**, when you leave or once it passes a set size, whichever comes first.
+- **It's paid back to you** on a fixed schedule: each year's credit about five years after it's made, whether or not you still work there.
 Meanwhile, the co-op gets to use that money to grow. In effect it's a loan from the members to their own business. That's why Mondragon valued it: a firm that can't sell shares to outsiders can still keep its own earnings working ([Morris, *The Mondragón System*, 1992](https://www.ilsr.org/wp-content/uploads/2013/03/mondragon-3.pdf)).
@@ -29,45 +29,68 @@ When the co-op makes a profit, it gets split. These are the defaults. Each co-op
 | --- | --- | --- |
 | **At least 30%** | The co-op's permanent reserve | Nobody can ever withdraw it (see [indivisible reserves](the-lock.md)). It's the firm's cushion and its own source of investment money. |
 | **Up to 10%** | The federation's shared fund, if the co-op belongs to one | Pools risk between co-ops (see [The Federation](federation.md)). |
-| **The rest, about 60%** | Members, divided by each member's share weight | This is the "profit share" from [Worker Ownership](worker-ownership.md). It ramps up with tenure, then caps. |
+| **The rest, about 60%** | Everyone who worked that year, divided by hours worked | This is the "profit share" from [Worker Ownership](worker-ownership.md). It ramps up with tenure, then caps. The part of a share someone hasn't reached yet goes to the reserve ([How a Locked Co-op Is Taxed](taxes.md)). |
 Mondragon's original split was similar: 10% to education and the community, at least 20% to reserves, and up to 70% to members. It later raised the reserve minimum to 50% (Morris, 1992).
 The members' share is then split again, between cash now and the account:
 - **At least 20% of it is paid in cash right away.** Members owe income tax on their whole allocation in the year it's made, including the part that goes into the account. The cash is there so they can pay that tax. This is how US co-op tax law works ([Democracy at Work Institute guide](https://institute.coop/sites/default/files/resources/Internal-Capital-Accounts.pdf)). The default is half in cash.
- **Lower-income members can take it all in cash.** For a low-wage worker, being taxed on money they can't touch can cost them tax credits and health-care subsidies. So any member whose household income is under twice the poverty line can take their whole share in cash.
+- **Lower-income members can take it all in cash.** For a low-wage worker, being taxed on money they can't touch can cost them tax credits and health-care subsidies. So any member whose household income is under twice the poverty line can take their whole share in cash. If they leave some in their account, by default they aren't taxed on it until it's paid out ([How a Locked Co-op Is Taxed](taxes.md#capital-accounts)).
 - **The rest goes into each member's account.**
 Members can also raise their own salaries instead of taking profit, but that doesn't get around the reserve. It takes its share of pay above the going rate too (see [Investing for the Long Run](the-long-run.md#the-rules)).
-**A worked example.** A 40-person co-op makes $600,000 in profit after paying everyone's salaries. It puts $180,000 in its permanent reserve and $60,000 in the federation fund. The remaining $360,000 is divided among members by share weight. Say the members' share weights add up to 36. A member at full share then gets $10,000: $5,000 as a check and $5,000 added to their account.
+**A worked example.** A 40-person co-op makes $600,000 in profit after paying everyone's salaries. It puts $180,000 in its permanent reserve and $60,000 in the federation fund. The remaining $360,000 is divided by hours worked. If all 40 members work the same hours, each one's hours earn $9,000. A member at full share gets it all: $4,500 as a check and $4,500 added to their account. A member at half a share gets $4,500, and the other $4,500 goes to the reserve. Profit earned by the hours of workers who aren't members yet is shared the same way, paid in cash, at the share of a member just starting out. Federal tax law is why it works this way ([How a Locked Co-op Is Taxed](taxes.md)).
 ## How the account grows
- **Interest is set by formula, not by vote.** A current member's account earns the one-year Treasury rate plus two percentage points in years the co-op makes a profit, and the plain Treasury rate in loss years. Once a member leaves, their balance earns the plain Treasury rate. If current members voted on the rate, they could set it to zero on accounts that mostly belong to people who've left. Or senior members could set it high to pay themselves out of the firm. A formula stops both.
+- **Interest is set by formula, not by vote.** A current member's account earns the one-year Treasury rate plus two percentage points in years the co-op makes a profit, and the plain Treasury rate in loss years. Once a member leaves, their balance earns the plain Treasury rate. So does the slice of a current member's account that's protected by [insurance](savings-guarantee.md), since it's no longer at risk. If current members voted on the rate, they could set it to zero on accounts that mostly belong to people who've left. Or senior members could set it high to pay themselves out of the firm. A formula stops both.
 - **Why the extra two points.** Money in a current member's account is at risk: it shares in losses and ranks behind lenders. If it only earned what a risk-free government bond pays, every member would take as much cash as they could, and the co-op would have less of its own money to invest. Once you leave, your balance stops sharing in losses, so it stops earning the premium. See [Investing for the Long Run](the-long-run.md#the-rules).
 - **Losses are shared.** In a year the co-op loses money, the loss is charged partly to the reserve and partly to members' accounts, in the same proportions as profits. Your account can go down, just like shares in any company.
 ## How it's paid out
- **When you leave**, your balance stops sharing in future losses and becomes a fixed amount the co-op owes you, earning the plain Treasury rate until it's paid. It's paid in equal parts over up to five years, so one big departure can't drain the firm's cash. Balances under $10,000 are paid all at once.
+- **Each year's credit is paid back after five years.** The money credited to your account for 2030 is paid to you in 2035, the 2031 credit in 2036, and so on, oldest first, each after that year's audited accounts are closed. Each co-op can set the wait anywhere from three to seven years in its bylaws. It's one of the two ways US worker co-ops already pay out accounts, called a "roll-over" ([Democracy at Work Institute guide](https://institute.coop/sites/default/files/resources/Internal-Capital-Accounts.pdf)). The co-op gets to use each year's credit for years, and nobody's savings are stuck until they retire.
 - **The wait is fixed when the credit is made.** A vote to change it applies only to credits made starting the year after the vote, so senior members can't speed up their own money or slow down anyone else's.
 - **Leaving doesn't change the schedule.** When you leave, your balance is fixed at the end of that year, after that year's profit or loss is counted, so nobody can quit just ahead of a bad year and escape it. After that it stops sharing in losses, earns the plain Treasury rate, and each year's credit is still paid on its own date.
 - **Small balances are paid early, for everyone.** Once anyone's whole balance is under $2,000, member or not, it's paid at the next payout date. That keeps a co-op from tracking small sums for years, and since it doesn't depend on leaving, nobody gains by quitting.
 - **There's no penalty for leaving.** Mondragon used to cut the payout by up to 30% for people who quit. This model doesn't, because a core promise of [the tenure cap](worker-ownership.md) is that you can change jobs without losing what you've built.
- **Accounts are capped at one year's pay.** Anything above that is paid out every year, in cash or into the member's own retirement account, where it can be invested in anything. Nobody should end up with most of their savings tied to the same company that pays their wages.
+- **Accounts are capped at one year's pay,** measured as the highest pay in the last three years, so nobody can cut their own pay to get their money sooner. Anything above that is paid out every year in cash, which a member can put in their own retirement account and invest in anything. Nobody should end up with most of their savings tied to the same company that pays their wages.
- **On death, the account goes to your estate**, paid within two years. It's your property.
+- **Any payout can be spread out.** Members get 90 days' notice of each payout and can ask for it in up to 12 monthly payments, so one check doesn't push a family over a limit for public benefits ([How a Locked Co-op Is Taxed](taxes.md#benefits)).
 - **On death, the account goes to the person you name,** your spouse unless you name someone else with their written consent, on the normal schedule.
 - **In a divorce, a court can split the account.** The former spouse gets a separate account of their own, with no vote, paid out on the normal schedule.
 - **Every year, each person gets a statement** showing each credit, any losses charged to it, and the date it will be paid. Former members get one too. A dispute gets a written answer within 90 days and can go to an outside arbitrator from the federation's list, or to court.
 ### Why not pay it out when you leave?
 Mondragon pays members their accounts when they retire or leave, and so do some US co-ops. This model doesn't, because of a federal pension law. Under the Employee Retirement Income Security Act (ERISA), any program an employer runs that holds back workers' income "for periods extending to the termination of covered employment or beyond" is a pension plan ([29 U.S.C. 1002(2)(A)](https://www.law.cornell.edu/uscode/text/29/1002)). The Labor Department's rule says the same about bonuses "systematically deferred to the termination of covered employment" ([29 CFR 2510.3-2(c)](https://www.law.cornell.edu/cfr/text/29/2510.3-2)). Members are the co-op's employees ([Owners Are Still Workers](labor-law.md)). There's a case that a co-op's profit allocations are an owner's share, not an employer's bonus, but the model doesn't stake members' savings on winning it.
 A pension plan would break the account. Its money has to be held in a trust, apart from the business ([29 U.S.C. 1103](https://www.law.cornell.edu/uscode/text/29/1103)), and the plan can't lend to the employer ([29 U.S.C. 1106](https://www.law.cornell.edu/uscode/text/29/1106)). The whole point of the account is that the co-op uses the money.
 **A fixed schedule is designed to stay outside the law's definition, but that isn't settled.** In 1995 the Labor Department said a company's profit-based program wasn't a pension plan because it didn't "expressly provide for a deferral of income to the termination of covered employment." But that program paid nothing to people who quit, and the Department pointed to that. It also warned that a program can still become a pension plan "as a result of surrounding circumstances," such as "an inordinate percentage" of participants being near retirement age when payments arrive ([Advisory Opinion 95-23A](https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/advisory-opinions/erisa-section-3-3-employee-pension-benefit-plan-advisory-opinion-1995-23a.pdf)). Here, people who leave are still paid afterward, on the same dates as everyone else. A court could count that against the design. So:
 - **Nothing about the payout depends on leaving:** not the date, not the amount, not the small-balance rule.
 - **The wait is short and the same for everyone,** at most seven years, not tied to age or retirement.
 - **The account isn't sold as retirement savings.** A co-op that wants to help members save for retirement does it the ordinary way, with a regular retirement plan held outside the business.
 - **The first pilot co-ops ask the Labor Department for an advisory opinion on their real bylaws, and the bank pays.** An opinion only covers the co-op that asked, on its own facts, so the bank also asks the Department for a rule any employer could use, for profit-sharing paid on a short fixed schedule. It doesn't ask Congress for an exemption only co-ops would get.
 **The cost is capital.** Money paid back after five years is money the co-op can't keep using for fifteen. So a co-op that wants to invest more has to keep more in its permanent reserve, and that weakens the model's answer to the horizon problem ([Investing for the Long Run](the-long-run.md#who-pays-for-an-investment-and-when)).
 ## Protecting the co-op, and the people who stay
 A payout system can also be used to strip a failing firm. People who see trouble coming leave first and get paid in full, while everyone who stays absorbs the loss. So:
- **Every payout must pass a solvency test.** No payment may push the co-op below its loan requirements or a minimum cash level set in its bylaws when it's founded.
+- **Every payout must pass a solvency test.** No payment may push the co-op below its loan requirements or a minimum cash level set in its bylaws when it's founded. Members can't lower that minimum without the bank's consent.
- **If a payout fails the test, it's paused for at most two years.** Interest keeps building, and nobody's account is cancelled. While any former member's payout is paused, **current members get no cash profit share and no bonuses.** Nobody gets paid ahead of the people who are waiting.
+- **If payouts fail the test, they're paused, all together, for at most two years.** Credits from the same year are treated the same whether their owner still works there or not, and the oldest are paid first when money allows. Paused amounts earn the Treasury rate plus two points, since the people waiting are carrying extra risk. While any payout is paused, **current members get no cash profit share, no bonuses and no raises above the going rate.** Nobody gets paid ahead of the people who are waiting.
 - **After two years, a pause becomes a debt with a schedule.** Whatever is still unpaid becomes a note the co-op repays in equal parts over five years, still behind its lenders, and the [insurance pool](savings-guarantee.md) covers former members' insured amounts if the co-op fails. So the worst case for a member who leaves is a long wait: up to seven years for the last credit, plus the pause, plus the note. The co-op's bylaws have to say so in plain words.
 - **Losses are spread evenly.** When a loss is charged to members' accounts, it's charged to every year's credits that haven't been paid yet, in proportion, not to the newest or the oldest first. So the timing of payouts can't be used to dodge a loss.
 - **Payouts rank behind the co-op's lenders.** In a bankruptcy, members' accounts are paid only after the co-op's creditors. That's the honest cost of being an owner, and it's the main reason for the one-year-of-pay cap.
 - **The co-op doesn't lend to members against their accounts.** That would just be an early withdrawal by another name. Members can use their account as collateral with an outside lender.
- **Federations can insure balances.** A [federation](federation.md) can use its shared fund to guarantee members' balances up to a modest limit, the way deposit insurance protects bank savers.
+- **Savings are insured, up to a point.** Every locked co-op belongs to a members' savings insurance pool, paid for by the co-ops. It covers workers' final unpaid wages, former members' unpaid payouts up to $50,000, and a protected slice of current members' accounts. See [Protecting Members' Savings](savings-guarantee.md).
 - **No other savings in the co-op.** A co-op can't take deposits from its members or sell them bonds. A member's only money in the co-op is their account.
-**Why this much caution.** Fagor, Mondragon's appliance maker and once the world's largest industrial co-op, went bankrupt in 2013 with about €1.1 billion of debt, putting 5,600 jobs at risk. Savers who had bought its subordinated co-op bonds, which had been sold as safe deposits, ended up suing ([Wikipedia summary of the Mondragon record](https://en.wikipedia.org/wiki/Mondragon_Corporation)). Shortly before Enron collapsed in 2001, about 63% of its workers' 401(k) retirement savings were in Enron's own stock ([GAO-02-480T](https://www.gao.gov/assets/gao-02-480t.pdf)). It's the same lesson: savings concentrated in the company you work for are the savings most likely to disappear with your job.
+**Why this much caution.** Fagor, Mondragon's appliance maker and once the world's largest industrial co-op, went bankrupt in 2013 with about €800 million (about $1.1 billion) of debt ([The Local, 2013](https://www.thelocal.es/20131114/major-manufacturer-fagor-files-for-bankruptcy)), putting 5,600 jobs at risk. Savers who had bought its subordinated co-op bonds, which had been sold as safe deposits, ended up suing ([Wikipedia summary of the Mondragon record](https://en.wikipedia.org/wiki/Mondragon_Corporation)). Shortly before Enron collapsed in 2001, about 63% of its workers' 401(k) retirement savings were in Enron's own stock ([GAO-02-480T](https://www.gao.gov/assets/gao-02-480t.pdf)). It's the same lesson: savings concentrated in the company you work for are the savings most likely to disappear with your job.
 ## What the account doesn't do
@@ -0,0 +1,101 @@
 ---
 title: What If Conservice Had Been a Co-op?
 section: Making the Case
 order: 160
 summary: A real company that has taken on new private equity owners three times in ten years, imagined instead as a locked co-op from the day it was founded, with who would govern it, where its profit would go, and who would have received less.
 ---
 # What If Conservice Had Been a Co-op?
 [The thesis](thesis.md) uses one example: "TPG's stake in Conservice." This page works that example through.
 It isn't a plan to take Conservice from anyone. This model doesn't buy or seize companies, and nothing here says any owner or founder did anything wrong. Every sale described below was lawful and chosen by the people selling. The question is about the structure, not the people: **what if a company with Conservice's business had been founded as a [locked co-op](the-lock.md) in 2000?** Who would govern it, where would its profit go, and who would have received less?
 Everything on this page comes from public sources.
 ## The company as it is
 Conservice, based in Logan, Utah, was founded on August 28, 2000, by David Jenkins and a business partner. It started out billing apartment residents for their utilities ([Herald Journal, 2020](https://www.hjnews.com/news/business/progressive-workplace-conservice-marks-20-years-as-standout-local-employer/article_5768eef4-b633-58a2-b036-7077c76cf86e.html)). Today it handles utilities for nearly 8 million rental units and other properties, working with more than 20,000 utility providers ([TPG, 2025](https://www.tpg.com/news-and-insights/tpg-to-acquire-majority-stake-in-conservice)).
 It had 2,083 employees in 2020, up almost 900 in four years. By 2025 more than 2,000 came from its home county alone, making it one of the county's largest private employers. About 5,000 local people have worked there over its 25 years ([Herald Journal, 2025](https://www.hjnews.com/news/business/logan-based-company-conservice-celebrates-25-years/article_c24ef502-2cb3-4c43-916d-9a7320ec5977.html)). Its total headcount across all offices isn't public.
 A local-paper headline called it a "standout local employer." It moved its staff home early in the pandemic when, as its founder said, "we could make people come in the office." It gives paid time for community service and matches part of workers' retirement savings ([Conservice careers page](https://www.conservice.com/careers)). Those benefits are real. They're also the owners' to give and the owners' to take back. **This page isn't about bad management.** It's about who holds the claim on everyone's work.
 **Who owns it.** Private equity firms, which buy into companies with investors' money and borrowed money, have held stakes in it one after another:
 - **2016:** TA Associates invests ([TA](https://www.ta.com/portfolio/investments/conservice/)).
 - **2020:** Advent International buys a minority stake, at a value of $2.66 billion for the whole company ([Herald Journal, 2020](https://www.hjnews.com/news/business/progressive-workplace-conservice-marks-20-years-as-standout-local-employer/article_5768eef4-b633-58a2-b036-7077c76cf86e.html)).
 - **December 2025:** TPG agrees to buy a majority stake. TA sells out completely, and Advent keeps a large stake. The price wasn't published ([TPG](https://www.tpg.com/news-and-insights/tpg-to-acquire-majority-stake-in-conservice)).
 **What it earns.** TPG's purchase was backed by a loan package of more than $1 billion. The company was presented to lenders as earning about $230 million a year before interest, taxes and the accounting charges for wear and tear on its assets (a measure called EBITDA). People close to the deal told the trade press the real figure was more likely $175 million to $225 million ([Octus, January 2026](https://octus.com/resources/articles/update-1-blue-owl-crescent-expected-to-lead-private-credit-financing-for-conservice-buyout-by-tpg/)).
 ## Where the money goes now
 - **Workers** get salaries and benefits. As far as public sources show, they have no vote on who owns the company, who runs it or where its profit goes.
 - **Lenders** get the interest on more than $1 billion. That money backed TPG's purchase. In deals like this it usually also pays off the company's earlier loans. Either way, it's the company's own earnings that pay it back.
 - **Owners** get what's left, and then the gain when they sell to the next owner. Each sale paid the previous owners, including the founders, at a price the buyer put at risk. And each price was a bet on the future work of people who still work there and had no say in the sale.
 That's what the thesis means by a claim on other people's labor that the owner doesn't work alongside. A stake like that can be sold, again and again, and each sale puts a price on thousands of people's future work.
 ## The same company, founded as a co-op
 Now imagine the same business, the same customers and the same growth, but founded in 2000 as a worker co-op under this model. That's a big assumption, discussed below.
 **Who governs.** The workers are members, each with one vote. They elect a board, and the board hires the chief executive. Managers still manage. Members don't vote on every decision, only on what their bylaws say they vote on ([Worker Ownership](worker-ownership.md)). The company could have leaders much like its current ones. The difference is who they answer to.
 **Not everyone is equal on day one.** New workers become members after a probation of up to a year. Their share of the profit then grows over about five years until it's full. Non-members can do up to a quarter of the work hours, but no more ([Guarding the Pilot](pilot-safeguards.md#the-hidden-boss)).
 **No sales.** Under [the lock](the-lock.md), the company can never be sold to conventional owners. The 2016, 2020 and 2025 deals don't happen. No buyer means no billion-dollar loan to pay back.
 **Where the profit goes.** Under the [default split](capital-accounts.md#where-each-years-profit-goes), 30% goes to a permanent reserve that nobody can ever withdraw, which pays for growth, the job outside investors' money does today. Up to 10% goes to the [federation](federation.md)'s shared fund. About 60% goes to members, split by how long each has worked there, up to a cap. At least a fifth of each member's share is paid in cash, half by default. The rest goes into their [capital account](capital-accounts.md), which is paid out after they leave. So nearly everyone among the 5,000 people who have worked there, everyone who stayed past probation, would have left with something.
 **Unions still have a place.** Members can still organize, and a union can still bargain over pay, schedules and grievances with the managers the board hires. Owning the company doesn't make every disagreement disappear.
 ## What it could mean in dollars
 This model's case isn't about money ([Making the Case](the-argument.md)). But the numbers show the scale.
 They need two assumptions, because the real figures aren't public:
 - **Profit.** EBITDA is higher than real profit, because it leaves out the cost of equipment and software that wears out. So assume real profit of **$125 million to $175 million** a year.
 - **Headcount.** More than 2,000 employees come from the home county, and there are other offices. So assume **2,500 to 4,000** workers.
 The table also assumes the average member holds about 70% of a full share, since newer members are still ramping up.
 | Real profit | Workers | **A full-share member's profit share each year** (before income tax; about half in cash, the rest in their account) |
 | --- | --- | --- |
 | $125 million | 4,000 | about $27,000 |
 | $125 million | 2,500 | about $43,000 |
 | $175 million | 4,000 | about $38,000 |
 | $175 million | 2,500 | about $60,000 |
 In a co-op, salary and profit share are two parts of one income. Members set the split, within the model's rules. The figures above are on top of whatever salaries the co-op pays, which might not match today's. On taxes: a co-op generally doesn't pay corporate income tax on the profit it assigns to members, but members pay income tax on their whole share in the year it's assigned. The reserve is taxed like any company's profit.
 These are rough numbers from public reporting, for a company that may never have existed in this form. They show the scale, not a promise.
 ## Would it have grown?
 This is the honest weak point.
 - **It grew for sixteen years before any private equity firm bought in.** By 2016 it already had roughly 1,200 employees (2,083 in 2020, less the almost 900 added in the four years before). So its early growth didn't depend on private equity.
 - **Private equity's years brought acquisitions.** In 2020 it bought Capturis, a North Dakota company that pays commercial buildings' utility bills ([Conservice, 2020](https://www.conservice.com/press-releases/conservice-acquires-capturis-bringing-value-to-commercial-markets-served/)), and it has bought others since. A co-op can buy companies too. But under [the lock](the-lock.md), the people who work there have to become members, and some sellers wouldn't accept that. Otherwise the co-op ends up like Mondragon's foreign subsidiaries: a members' club that owns firms full of workers with no stake. So a co-op version would probably be smaller, and some of today's earnings came from companies it might not have bought.
 - **Borrowing would be harder.** A first loan from [the bank](the-bank.md), at market rates with no personal guarantees, is exactly what the bank exists for. (The real company had two founders. The [pilot](pilot-spec.md#who-can-borrow) would have required a third.) But the pilot caps each co-op at $3 million in loans over its lifetime, so the bank gets a company like this started, not grown. After that, a profitable business can borrow from ordinary lenders. Conservice's earlier loan came from private lending funds at a normal rate for a company like it ([Octus](https://octus.com/resources/articles/update-1-blue-owl-crescent-expected-to-lead-private-credit-financing-for-conservice-buyout-by-tpg/)). But those lenders were lending to a company with owners' money beneath them to absorb losses first. A co-op, with its members' accounts paid out as people leave and [the lock](the-lock.md) narrowing who could buy it if it failed, would likely borrow less, at a higher price.
 Whether co-ops can grow on those terms is exactly what [the test](the-test.md) is for.
 ## Who would have received less
 **The founders.** As members, they would have had a founding share, their accounts, and executive pay while they ran it. They would never have sold. In the model's 200-person example, a co-op founder ends up with about $2 million against $29 million to $38 million for a conventional owner ([The Founder Problem](founder-problem.md#the-numbers)). Conservice was valued at $2.66 billion in 2020, so at its scale the gap would be far wider. What the founders actually received hasn't been published.
 The model's aim is for that value to stay with the people who keep producing it. But that raises the question the whole model rests on: **would these founders have started this company as a co-op?** Nobody knows. The founder problem isn't solved, and this example doesn't solve it.
 **The investors.** TA, Advent and TPG could still have lent to the co-op, or put in money for a share of profits that ends after a set time ([Capital, After](capital.md)). That would still be a claim on the members' work. The model's answer isn't that such a claim is free. It's that the claim ends and carries no vote. What they couldn't have bought is a permanent claim, the kind that can be sold again.
 **The workers, in one way.** A member's account rises and falls with the company. The [insurance pool](savings-guarantee.md) protects part of it, not all of it.
 ## What this example doesn't prove
 - **It assumes the company would exist either way.** That's the biggest assumption on the page. If worker ownership makes firms less productive, or if the founders would never have started it, the comparison falls apart. [The pilot](pilot-spec.md) is built to find out.
 - **Conservice is unusually profitable.** A home-care co-op has very little profit to share. For low-margin work, ownership brings a say and not much money, which is why the model also has [a floor](the-floor.md).
 - **Ownership changes who gets the profit, not who pays it.** A co-op version would bill the same renters, who don't choose their building's billing company. They'd still need the same protection from unfair fees that they need now.
 - **Dollars aren't the main point.** It's about who decides. Thousands of people in one valley have seen new owners buy into their company three times in ten years, and none of them had a vote on any of those deals. In the co-op version, they would.
@@ -9,7 +9,7 @@ summary: The biggest risk is that the model gets repealed, not that the state ov
 This model asks little of the state: charter [a bank](the-bank.md), enforce [the lock](the-lock.md), run [the floor](the-floor.md). The concentration-of-power argument still applies to the floor (see [Open Problems](open-problems.md) on "essential" sectors), but it isn't the biggest risk.
-**The main risk is durability, not overreach.** A model that can be built gradually can be dismantled gradually. A future Congress can defund the bank, and a statutory lock can be repealed by the same kind of majority that passed it. Postwar social democracy got rolled back once the coalition that built it weakened; a voluntary co-op sector is exposed to the same thing. So the design question is: **what makes this hard to reverse?** Partial answers: the lock written into each co-op's own charter and into state co-op law, not just federal statute; a federation that becomes financially independent of the public bank; and, above all, a co-op sector large enough to have its own constituency.
+**The main risk is durability, not overreach.** A model that can be built gradually can be dismantled gradually. A future Congress can defund the bank, and a statutory lock can be repealed by the same kind of majority that passed it. Postwar social democracy got rolled back once the coalition that built it weakened; a voluntary co-op sector is exposed to the same thing. So the design question is: **what makes this hard to reverse?** Partial answers: the lock written into each co-op's own charter and backed by an independent lock share (see [The Lock](the-lock.md#how-the-lock-is-made-to-hold)), and into state co-op law, not just federal statute; a federation that becomes financially independent of the public bank; and, above all, a co-op sector large enough to have its own constituency. How each of those works, what it can't protect, and what happens now that any president can replace the bank's board, is in [Making It Last](durability.md).
 **Money out of politics.** Legislative work pays well enough that good people want the job, but any money, gift, or benefit from a non-government entity ends the salary and starts a prison sentence. Politicians should benefit only from serving their people.
@@ -0,0 +1,131 @@
 ---
 title: Making It Last
 section: Guardrails
 order: 125
 summary: Anything built by one law can be undone by the next, so the model is built to survive a hostile government, and this page says what that protects and what it can't.
 ---
 # Making It Last
 The biggest threat to this model isn't that the state grows too strong. It's that a later government undoes it. Everything here rests on ordinary laws: a charter for [the bank](the-bank.md), a law backing [the lock](the-lock.md), and money set aside for [the pilot](pilot-spec.md). Anything one Congress passes, a later one can repeal ([The Constitution](constitution.md)).
 Repeal is only the most obvious way to kill it. Public programs die in quieter ways too. They get starved of money and staff, run by people who want them to fail, or left without anyone able to sign off on decisions. A hostile government can also make an experiment *look* like it failed. This page goes through how those things have happened to real programs, and what the model does about each one. Some of it can be protected well. Some of it can't be protected at all, and the page says which is which.
 ## How public programs get killed
 **By doing nothing: the Export-Import Bank.** America's export-credit bank has to be reauthorized by Congress every few years. In 2015 Congress let its charter lapse, and from July 1 until early December it couldn't make new loans. Then a second problem hit. Its board needs three voting members to act, and when two terms expired in July 2015, the Senate didn't confirm replacements. For nearly four years the bank couldn't approve any deal over $10 million. By mid-2016, more than 30 deals worth over $20 billion were stuck waiting ([Congressional Research Service, 2016](https://www.everycrsreport.com/reports/IN10574.html); [2019](https://www.everycrsreport.com/files/20190809_R43581_3f42ff567900d03421b053fdee99f7450d886877.html)). Nobody had to vote to shut it down. Opponents only had to not act.
 **By cutting its staff: the CDFI Fund.** The Treasury's Community Development Financial Institutions Fund has backed community lenders for three decades. In March 2025, a presidential order told it to shrink to "the minimum presence and function required by law." In October 2025 the Treasury moved to lay off its roughly 100 staff. 105 Republican members of Congress wrote to defend it, and a court order blocking layoffs during that fall's government shutdown held them off for the time being ([Roll Call, 2025](https://rollcall.com/2025/10/27/senate-and-house-gop-defend-community-finance-fund-from-trump-cuts/)). A program that runs on the government's staff can be starved without being repealed.
 **By taking the money back: the Greenhouse Gas Reduction Fund.** Congress created this $27 billion fund in 2022 to seed green lenders. By early 2025, $20 billion had been awarded to eight nonprofit lenders and was held at Citibank, which acted as the government's financial agent. In March 2025 the new administration terminated the grants and froze the money. The courts have gone back and forth, and the case is still going ([Columbia Law School Climate Law Blog, 2026](https://blogs.law.columbia.edu/climatechange/2026/08/07/a-big-win-in-few-words-what-to-glean-from-the-climate-united-fund-decision/)). Then, in July 2025, Congress repealed the program and took back all of its money that hadn't yet been committed. It did that inside a huge budget bill, passed by simple majorities under special rules that block a Senate filibuster. Because almost all of the money had already been awarded, the repeal itself took back only about $19 million ([Congressional Record, July 9, 2025](https://www.congress.gov/119/crec/2025/07/09/171/118/modified/CREC-2025-07-09-pt1-PgS4281-4.htm)). Two lessons: money the executive branch can reach can be frozen with a letter, and money not yet committed can be taken back by a line in a bill few people read. Money already awarded was much harder to take back.
 **By changing what it is: America's co-op bank.** When the Reagan administration tried to close the National Consumer Cooperative Bank in 1981, it survived by being privatized. Then it drifted toward lending to co-ops that could have borrowed anywhere ([Has This Been Tried?](precedents.md#americas-co-op-bank-the-national-consumer-cooperative-bank)).
 ## How public programs survive
 **A fair trial and a steady base: the Bank of North Dakota.** North Dakota's state-owned bank opened in 1919, created by a farmers' movement openly sympathetic to socialism. Its opponents fought it every way they could. They sued and lost at the US Supreme Court in 1920. They recalled the governor in 1921, the first governor recall in American history. They put abolishing the bank on the ballot, and lost by 4,238 votes. They worked with East Coast financiers to boycott the state's bonds, and that boycott, along with the recall, helped push the movement that founded the bank out of power. What saved the bank itself, historians say, was the governor from the opposing side who replaced the recalled one. He decided it was "right and just and wise to give it a full, fair, and honest trial," and ran it "in a sane and conservative way" ([Bank of North Dakota history](https://thebndstory.nd.gov/years-of-desperation/organized-opposition-tried-to-take-the-bank-down/)). It also has a structural advantage: by state law, the state's own money must be deposited with it ([N.D. Century Code § 6-09-07](https://www.ndlegis.gov/cencode/t06c09.pdf)). It's still running more than a century later. It survived by being careful, which this model's bank is designed to be from the start.
 **Owners spread everywhere: rural electric co-ops.** In the mid-1930s, nine in ten rural American homes had no electricity. Private utilities wouldn't wire sparse areas. From 1936, the federal Rural Electrification Administration lent money to farmers who formed co-ops to do it themselves. By 1953, over 90% of farms had power. In 1942, facing false accusations during the war, the co-ops formed a national association to speak for them in Washington. Today more than 900 electric co-ops serve over 40 million people ([America's Electric Cooperatives](https://www.electric.coop/our-organization/history); [2026](https://www.electric.coop/rea-at-90-years-celebrating-the-landmark-law-that-birthed-rural-electrification)). The program built its own defenders: owners in almost every congressional district. That cuts both ways. Critics can fairly say that defenders like these keep subsidized loans flowing long after the original job is done.
 **Paying the government back: the Farm Credit System.** Congress started a system of farmer-owned co-op lenders in 1916 and expanded it in 1933, with federal money. The lenders repaid all of it, and by 1968 they were wholly owned by the farmers who borrowed from them ([Farm Credit Administration](https://www.fca.gov/about/historical-highlights-of-fca-and-the-fcs)). Once the system belongs to its borrowers, no budget vote can starve it and no president can replace its lenders' boards. It wasn't the end of the risk: in the 1980s farm crisis the system needed a federal rescue, of which about $1.3 billion was used.
 **What political scientists find.** Eric Patashnik studied what happens to major reforms after they pass. He found that "the reforms that stick destroy an existing policy subsystem and reconfigure the political dynamic," creating their own supporters ([Reforms at Risk, Princeton University Press](https://press.princeton.edu/books/paperback/9780691138978/reforms-at-risk)). Reforms that leave the old interests in place tend to unravel.
 ## Who controls the bank now
 The model says the bank should be walled off from politicians "the way monetary policy is walled off from Congress." The obvious way to do that is to give the bank's board fixed terms, so a president can remove them only for misconduct. That route is now closed.
 In June 2026, in *Trump v. Slaughter*, the Supreme Court held that the Federal Trade Commission's protection from removal was unconstitutional, because officials under the President's "general administrative control" must be removable at will. It put aside only the Federal Reserve, "to the extent that it follows in the distinct historical tradition of the First and Second Banks of the United States—both of which influenced monetary policy" ([Trump v. Slaughter, 2026](https://www.supremecourt.gov/opinions/25pdf/25-332_qn12.pdf)). The same day, in *Trump v. Cook*, the Court upheld the Fed governors' protection, on the ground that "monetary policy should not be subject to political interference" ([Trump v. Cook, 2026](https://www.supremecourt.gov/opinions/25pdf/25a312_5468.pdf)). A bank that lends to co-ops doesn't set monetary policy, so it almost certainly doesn't fit that exception.
 So this model assumes **any president can replace the bank's whole board, any time.** The protection has to come from what the board *can't* do, not from who sits on it. That's also more honest. A bank run by people nobody can remove would be exactly the unaccountable power this model warns against elsewhere.
 ## The rules
 ### What a new board can't change
 The things that decide whether the experiment is fair are written into the law that creates the bank, not left to the board:
 - the [co-op definition and the lock](worker-ownership.md) that borrowers must accept;
 - the measures, thresholds, reviewers and deadlines in [the decision rule](pilot-spec.md#the-decision-rule);
 - **the lending standards**, meaning the scoring model used to judge applications, filed with the rest of the plan before the first loan;
 - the [rate audit](pilot-spec.md#what-market-rate-means), which works in both directions;
 - the loan limits and the rules against [political favoritism](pilot-safeguards.md#political-favoritism);
 - **how loans are managed once made.** A loan can be called in early only if payments stop, never for a technicality. The rules for handling a co-op in trouble are filed in advance too.
 The board can propose changes to the lending standards, with published reasons. The reviewers then report every result both ways: under the original standards and under the new ones. By law, no official can direct a decision on a particular loan, and any attempt is logged and published.
 ### Rigging the result
 A hostile board has two ways to make co-ops look like failures without breaking any rule openly. The reviewers check for both.
 - **Turning away good applicants.** Every year, the reviewers audit a sample of rejected applications against the filed standards and publish the rejection rate for applications that met them. If too few co-ops get funded because applicants didn't show up, that's a real result, as [the pilot](pilot-spec.md#why-about-400-co-ops) says. If too few get funded because the bank turned away applicants who met its own standards, the final verdict says so: **"not tested,"** not "failed." The audit also covers co-ops in lower-paid work separately, so the bank can't quietly drift toward the safest co-ops ([Who the Bank Lends To](who-gets-loans.md)).
 - **Making bad loans on purpose.** If the [emergency stop](pilot-spec.md#the-decision-rule) fires, the reviewers check whether the losses come mainly from loans that broke the filed standards. If they do, it's treated like fraud, not like a verdict on co-ops. Lending restarts under the original standards, and those loans are reported separately.
 **This isn't a way to keep the bank alive.** "Not tested" means exactly what "failed" means for the bank: no new loans, the wind-down, and no second round of money. It only changes what the record says about co-ops. Nothing on this page extends the timeline either. The latest the final review can happen is year 15, which is the pilot's existing rule for when good applications are scarce.
 ### No quorum, no freeze
 Unlike the Export-Import Bank, this bank can't be frozen by leaving board seats empty. It uses ordinary delegation, which keeps the President in charge:
 - **Standing authority for smaller loans.** The board appoints senior credit officers and gives them authority to approve loans up to $1 million under the filed standards. That authority doesn't lapse when board seats go empty. Any board can take it back, publicly, but it can't disappear by default.
 - **No quorum means an acting chair, not no one.** If the board can't meet, the Treasury Secretary, or an acting official named under the normal federal vacancy law, can act for it on loans too big for staff.
 - **Applications can't be buried.** A complete application gets a decision within 120 days, yes or no, with reasons. The clock pauses while the bank is waiting on information it asked for. The rule forces an answer, not a yes.
 - **A second check during vacancies.** Any loan over $500,000 approved while the board lacks a quorum is cleared by the independent auditor before any money goes out.
 ### Where the money sits
 The $350 million, and the separate $100 million for [worker buyouts](buyouts.md), is paid into the bank as its own capital when it's chartered, not handed over year by year. The model says plainly what that does and doesn't protect.
 - **It needs explicit legal cover.** By default, the Treasury keeps a federal corporation's accounts ([31 U.S.C. § 9107](https://www.law.cornell.edu/uscode/text/31/9107)). The farm co-op banks were exempted from that rule by name, and this bank's law has to do the same, so its money isn't held where one agency can freeze it.
 - **Running costs come from the bank's capital and income**, as [the pilot](pilot-spec.md#how-much-money-and-why) already says, not from yearly appropriations. So nobody can starve it by refusing to pass a budget line.
 - **The reviewers are paid in advance.** Money for the independent review is set aside from the capital on day one and paid to the reviewers by contract. A hostile government can't quietly disable the referee by not funding it.
 - **What it doesn't protect.** Money not yet lent can still be taken back by Congress, the way the green-bank program's uncommitted money was. That takes a law, and it happens in public, but it can be a single line in a large budget bill passed by a simple majority. The pilot's capital will sit partly unlent for years, and that's exactly the kind of money that gets taken. Congress can also attach riders to spending bills that bar the bank from using its money. Neither can be prevented. The only defense is that doing it is visible.
 ### Loans already made keep their terms
 Every loan is a binding contract. If a later law ends the bank, money already lent keeps its terms, and the loans are offered first to co-op and community lenders, as they would be after a failed test (see [the decision rule](pilot-spec.md#the-decision-rule)).
 The wind-down has its own guards. Loans are sold for no less than an independent appraisal, only to lenders named in the bank's law (co-op lenders, credit unions and nonprofit community lenders), and they can't be resold to anyone else for five years. Otherwise a hostile Treasury could sell them cheaply to a front for a distressed-debt buyer.
 Future stages of a loan that haven't been paid out are *not* promised. The contract says so in plain words. If Congress ends the bank, it doesn't owe anyone money for loans it never made, and one Congress can't lock a later one into paying out.
 If a later law tried to change the terms of money already lent, there's precedent for the government owing damages. In *United States v. Winstar* (1996), Congress changed banking rules in a way that broke promises regulators had made to savings-and-loan companies that took over failing ones. The Court's lead opinion held that Congress was free to change the law, but the government still owed damages for breaking its contracts ([Winstar, 1996](https://www.law.cornell.edu/supremecourt/text/518/839)). It's only partial protection. There was no single majority opinion, the damages cases dragged on for years, and it only helps where the contract clearly puts the risk of a change in the law on the government. So the loan contracts say that explicitly.
 ### The lock doesn't depend on Washington
 [The lock](the-lock.md) lives in each co-op's own charter and is enforced by an independent lock-holder, not by the bank. So repealing the bank's law doesn't unlock a co-op in ordinary times. There's one big exception. The lock only holds in bankruptcy if federal bankruptcy law is amended (see [When a Locked Co-op Goes Bankrupt](bankruptcy.md)), and a Congress that repeals the bank could repeal that amendment too.
 States are the second layer. Co-op law in America is state law. Massachusetts, for example, has had a law for worker co-ops since 1982, but a co-op can leave that status by a two-thirds vote of its members ([Mass. Gen. Laws ch. 157A, § 4](https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXXII/Chapter157A/Section4)). That's exactly the exit the lock closes. So the model includes a short model state law that recognizes locked co-ops and their lock shares. States adopt it or don't. Nothing in the federal law requires it. It only protects co-ops that chose the lock, in exchange for a loan they chose to take.
 ### Federal test, state copies
 [Open Problems](open-problems.md) asked whether the bank should be federal or run by states. The answer here is both, for different jobs:
 - **The test is federal.** One bank, one plan and one set of reviewers make one clean experiment. Fifty small ones, each designed a little differently, can't be added up into one answer.
 - **Any state can copy it.** A state can charter its own co-op lender under the same published rules. A state lender can even be given a steady base the way North Dakota's is, by holding some state money on deposit. Its results are reported separately and don't count toward the federal test in either direction. If Washington abandons the idea, the states that copied it keep running.
 ### The sector pays its own way
 The last layer is the only one that doesn't depend on anybody's goodwill: the co-ops' own money. The [federation](federation.md)'s shared fund is built to become a lender itself, the way Italy's Coopfond has lent to co-ops for three decades out of their own profits ([Has This Been Tried?](precedents.md)). The sooner co-ops can finance each other, the less a hostile Congress can do.
 ## Why a hostile government might leave it alone
 The Bank of North Dakota survived because the side that had fought it decided to give it a fair trial. This model tries to make that the cheaper choice for an opponent:
 - **It's a one-time cost.** There's no yearly spending line to fight over.
 - **It shuts itself down if it fails.** An opponent who expects co-ops to fail can let [the decision rule](pilot-spec.md#the-decision-rule) prove it, and the rules above make it hard to rig that result either way.
 - **It buys no one's company.** It still spends public money, and conventional competitors and some employers will oppose it anyway. Italy's main employers' association got part of its worker-buyout program suspended by the EU ([Has This Been Tried?](precedents.md#italys-co-op-funds-coopfond-and-the-marcora-law)). But no industry loses its property.
 - **Every result is public,** so whoever ends it early has to explain why.
 None of that stops a determined opponent. It only raises the cost of acting in bad faith.
 The electric co-ops show the longer-term defense. If the test passes and the sector grows, it will eventually have members in most congressional districts. People who own part of something defend it. The same defenders can also lobby to keep a program running after it's stopped earning its place. That's why the pilot's growth depends on a fixed test, not on how many friends it has.
 ## What this can't protect
 - **The bank itself.** A Congress and President who both want it gone can repeal it. Nothing here prevents that, and nothing should. A democracy has to be able to change its mind. The design only makes sure the repeal is done by law, and that it can't take the co-ops' charters with it.
 - **Money not yet lent,** which a budget bill can take back, and riders that bar spending.
 - **A board that's merely timid.** The rules stop a freeze and expose rejecting good applicants. They can't make a hostile board eager, stop it hiring timid staff, or stop it pulling back the credit officers' authority in public.
 - **A small constituency.** At pilot scale, around 400 co-ops employ perhaps several thousand people. That's nowhere near enough to defend anything politically. The electric co-ops became defenders after decades and hundreds of co-ops. Until this sector is large, durability comes from the co-ops' own charters and money, not from votes. How long it could take to get large is worked through in [After a Pass: How Big, How Fast](scale.md).
 - **Pressure outside the law.** Other banks refusing to work with co-ops, co-ops shut out of government contracts, targeted inspections. The federation and co-op-friendly lenders like credit unions are the only real answers, and they take time to build.
 - **The courts.** How far *Slaughter* reaches, and whether damages follow when a later law breaks a loan contract, will be settled by judges, not by this design.
@@ -0,0 +1,114 @@
 ---
 title: Who Decides What's Essential
 section: Beyond Co-ops
 order: 112
 summary: A public subsidy for "essential" low-paid work invites every low-wage industry to call itself essential, so a fixed formula decides which work qualifies, the money goes to workers by the hour, and states can't use it as a reason to pay less.
 ---
 # Who Decides What's Essential
 [The floor](the-floor.md) includes a targeted subsidy for essential low-paid work, paid to workers, not firms. Somebody has to clean the nursing home for the poor, and if the work can't pay a decent wage, the public should.
 The danger is in the word "essential." Whoever decides which work counts gets to set part of the price of labor in that industry. Every low-wage industry will discover that it's essential, and every one has lobbyists.
 ## How fast "essential" grows
 We've seen it happen. Early in the COVID-19 pandemic, the federal government published an advisory list of "essential critical infrastructure workers" who should keep working. Researchers at the CDC's occupational safety institute later matched it to standard industry codes. It covered industries employing about 81% to 87% of American workers, depending on how industries are counted ([Billock and others, 2022](https://pubmed.ncbi.nlm.nih.gov/35532007/)). That list was only advice about who could keep working, with no money attached, and "essential" still ended up meaning nearly everyone. A list that came with money would be under even more pressure.
 ## Who really gets the money
 The second danger is quieter. Money aimed at workers can end up with employers.
 The Earned Income Tax Credit tops up low earners' pay through the tax system. Because it draws more people into low-wage work, it pushes those wages down. One careful simulation, using a range of plausible assumptions about how workers and employers respond, found that each dollar spent raises workers' after-tax incomes by only about 73 cents. Employers capture much of the rest through lower wages, partly at the expense of low-wage workers who don't get the credit at all ([Rothstein, 2010](https://www.nber.org/papers/w14966)).
 Washington, D.C., tried a more direct route. Its Early Childhood Educator Pay Equity Fund paid child care workers supplements of $10,000 to $14,000 a year, sent to the workers themselves, outside their employers' payrolls. More than 4,000 educators received them, and over $80 million went out in the first two years ([D.C. OSSE](https://osse.dc.gov/ecepayequity)). An independent study found the fund added about 219 child care educators, around 7% more than there would otherwise have been. Employers' own pay didn't change, so in those two years they didn't claw the money back by cutting wages ([Mathematica, 2024](https://www.mathematica.org/publications/two-year-labor-market-impacts-of-washington-dcs-early-childhood-educator-pay-equity-fund)). Two years is short, though, and D.C. has since switched to paying the money through employers' payrolls. D.C. also shows a limit of what follows: child care is mostly paid for by families, so the test below may leave it out.
 Minnesota took a third route, and it gives workers a voice. In 2023 it created a board of three state officials, three employer representatives and three worker representatives, with the power to set minimum pay for nursing home workers. The board set $22.50 an hour for certified nursing assistants and at least $19 for everyone else, rising in 2027. The state pays for it through the rates Medicaid pays nursing homes, and it took effect in September 2026 after federal approval ([Minnesota Nursing Home Workforce Standards Board, 2025](http://www.dli.mn.gov/sites/default/files/pdf/nhwsb_annual_report_2025.pdf); [RMCEP](https://www.rmcep.com/success-stories/news-archive/p/item/69158/minnesotas-minimum-wage-standards-for-nursing-home-workers-in-effect-sept-10)).
 ## The model's answer
 ### A formula decides, not people
 No official, agency or Congress picks industries by name. Work qualifies only if it passes two tests, measured from published government data:
 1. **The public already pays for most of it.** Over the last three years, at least half of the industry's revenue came from public benefit programs like Medicaid, Medicare, veterans' care and public child care assistance. Ordinary government purchasing, like cleaning or security contracts, doesn't count. How that's measured, and which kinds of work pass today, is below.
 2. **The job pays less than most.** The typical hourly wage for the job, within that industry, is below the typical wage for all American jobs. In May 2025 that was about $24.50 an hour ($50,980 a year). Home health and personal care aides earned a typical $17.21 an hour, and nursing assistants $20.13 ([BLS, home health and personal care aides](https://www.bls.gov/ooh/healthcare/home-health-aides-and-personal-care-aides.htm); [BLS, nursing assistants](https://www.bls.gov/ooh/healthcare/nursing-assistants.htm)). The test is by job, not by industry, so the nurses and managers in a nursing home don't pull the aides' number up, and splitting staff into separate companies doesn't change anything.
 The first test is the important one, and it's really a test of who pays, not of what's "essential." That's on purpose: it's the one test lobbying can't argue its way around. Where the public is already the main buyer, the public is already setting the price, and a low public rate is a choice about what these workers are paid. It also keeps the program narrow. Retail, restaurants and other low-wage work paid for by private customers don't qualify. They're covered by the parts of the floor that apply to everyone, like the minimum wage and tax credits. Averaging over three years means an industry can't tip itself over the line in a single year.
 The national statistics agencies apply the formula every three years and publish the list, with old industry codes mapped to new ones when the codes are revised. Congress can change the formula, but only for everyone at once, with a published cost estimate. It can't add one industry by name.
 ### Measuring who pays
 The first test needs data on who pays each industry's bills. That data exists for some kinds of care, is misleading for others, and is missing for the rest.
 - **The Census Bureau's yearly survey of service businesses** splits health care industries' revenue by who paid it ([Service Annual Survey, Table 4, 2022 release](https://www.census.gov/data/tables/2022/econ/services/sas-naics.html)). But it counts payments from private plans that run Medicare and Medicaid for the government, like Medicare Advantage and Medicaid managed care, as "private health insurance." In 2021, 24 states paid for Medicaid long-term care through those plans ([MACPAC](https://www.macpac.gov/subtopic/managed-long-term-services-and-supports/)), so the survey undercounts public money.
 - **The federal health spending accounts** count those payments as Medicare and Medicaid, where they belong ([CMS methodology](https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/dsm-17.pdf)). But they're organized by type of care, not by industry, and some categories mix several industries.
 - **For social assistance, like child care and non-medical home care, the Census survey doesn't ask who pays at all.**
 **What the two health sources show.** The survey column counts only payments made directly by Medicare, Medicaid and other government programs, so it's a floor. The spending accounts column counts managed care too, but its categories are broader.
 | Kind of work | Census survey, 2020–22 average | Health spending accounts, 2021 |
 | --- | --- | --- |
 | Home health care | About 63% | About 72% |
 | Nursing homes | About 66% | About 56%, combined with retirement communities |
 | Residential care for developmental disabilities, mental health and addiction | About 67%, but only 45% from Medicare and Medicaid. The rest is other government programs, mostly state ones | Part of a mixed category that's about 61% public |
 | Assisted living and retirement communities | About 16% (2020–21; 2022 withheld). Families pay nearly half | Combined with nursing homes, above |
 | Hospitals | About 34% (2020–21; part of 2022 withheld) | About 52% |
 | Child care | Not measured | Not covered |
 Sources: Census [Service Annual Survey, Table 4](https://www.census.gov/data/tables/2022/econ/services/sas-naics.html), 2022 release; [MACPAC, from the national health spending accounts](https://www.macpac.gov/wp-content/uploads/2023/12/EXHIBIT-3.-National-Health-Expenditures-by-Type-and-Payer-2021.pdf), counting Medicare, Medicaid, CHIP and veterans' and military care.
 Three things stand out:
 - **Home health passes on any measure.** Non-medical home care, where most personal care aides work, isn't measured by industry at all. Medicaid paid about 60% of the broader category that includes most home and community-based care in 2023 ([MACPAC](https://www.macpac.gov/medicaid-101/spending/)), so it very likely passes, but real data has to show it.
 - **Counting managed care properly puts hospitals near the line.** Because the wage test is by job, a hospital that qualifies brings in its low-paid aides, housekeepers and cooks. That's consistent with the rule, since the public does pay for most hospital care, but it would add a great deal to the cost. It's shown here so nobody is surprised by it later.
 - **Child care is the hard case.** The US Treasury estimated that federal and state spending equaled about 47% of child care businesses' revenue in 2019, and said that probably overstates the public share, since some of that money pays for care outside those businesses ([US Treasury, 2021](https://home.treasury.gov/system/files/136/The-Economics-of-Childcare-Supply-09-14-final.pdf)). Pandemic relief money pushed the share up for a few years. Until there's real data, child care's status is undetermined.
 **So the law fixes the method in advance:**
 - **Which money counts.** A closed list: Medicare and Medicaid, including their private plans; CHIP; veterans' and military health care; the Indian Health Service; state programs for people with disabilities; child care assistance and Head Start. Only money paid to businesses in the industry counts. Workers' compensation, tax credits, Social Security benefits paid on a resident's behalf (which are the resident's own income), ordinary government contracts, and temporary emergency money don't. Changing the list follows the same rule as changing the formula: for everyone at once.
 - **Measured from payment records.** Public money comes from the programs' own payment records, matched to businesses by tax ID, not from what businesses say in a survey. Revenue comes from the Census survey, counting revenue from care, not donations or investment income. Where the Census withholds a figure, the last published one is used, and flagged.
 - **New data, on a deadline.** The Census survey has three years to report Medicare and Medicaid plan payments separately from private insurance, and to ask child care and home care businesses who pays them. The cost comes out of the supplement's own budget.
 - **Status is sticky.** An industry joins the list only after two reviews in a row at 50% or more, and leaves only after two reviews in a row below 45%. So sampling noise near the line, or one year's emergency money, can't flip it. A newly qualifying industry is paid only after its cost estimate has been public for a full budget year.
 - **No losing status for missing data.** If a list isn't published on time, the last one stays in force. When industry codes are revised, an industry keeps its status for two reviews while the new codes are mapped, and the mapping is published for comment first.
 - **No moving into a qualifying industry.** A company that works mainly for a related business takes that business's industry, and industry codes are checked against state licensing. An assisted living operator can't qualify by moving its aides into an affiliated home health agency.
 ### Paid to workers, by the hour
 - **Straight to the worker,** as a fixed amount per hour worked, as D.C. did at first. It's taxed like wages but doesn't count as income for the worker's own benefits, like Medicaid or food assistance, so it can't knock anyone off them.
 - **Real hours only.** Federal payroll forms report pay, not hours. So hours come from records that already exist for public programs, like the electronic visit records federal law has required for Medicaid home care since 2020 ([Medicaid.gov](https://www.medicaid.gov/medicaid/home-community-based-services/guidance/electronic-visit-verification-evv)), and from employers' own payroll hours where those aren't available. Hours per worker are capped, samples are audited, and when padded hours are found, the employer repays.
 - **Everyone doing the work counts,** including home care workers employed directly by the people they care for through a state program, and self-employed providers paid by a public program.
 - **It fades out gradually** as a worker's own hourly pay rises above the threshold, instead of stopping all at once. That means someone just above the line keeps less of each raise for a while, a real cost stated openly.
 - **Same for everyone.** Co-ops and conventional firms qualify on exactly the same terms. The subsidy doesn't favor co-ops, and it doesn't skew [the pilot's](pilot-spec.md) comparison with conventional firms, because both sides get it.
 ### Stopping the money from leaking
 Money aimed at workers has three ways out. Each gets its own rule.
 - **The public payer.** The biggest risk is that states cut their Medicaid rates, knowing the federal supplement will fill the gap. So a state's rates for qualifying care can't fall behind inflation. If they do, the federal share of the state's Medicaid spending on that care drops by the same amount. The supplement also can't count toward any rule requiring a share of rates to go to wages, and it's left out when rates are set.
 - **The employer.** An employer can't let any job's total pay, wages plus benefits, fall behind inflation compared with the year before its workers qualified. One that does repays the difference to its workers, with a penalty. Pay in qualifying work is compared every year with similar work that doesn't qualify, so slower raises show up.
 - **The owner.** In industries full of related-party rent and management fees, public money that frees up payroll can still end up with owners. The supplement doesn't fix that. It's a reason for the rate rules states set, and for co-ops.
 ### The budget
 The supplement is a fixed amount per hour, set in law and adjusted for inflation, so it doesn't shrink when Congress wants to starve it quietly. The cost is whatever that amount times the qualifying hours comes to, published every year. When the formula adds an industry, the cost rises, and everyone can see by how much.
 For scale: $2 an hour for 5 million workers averaging 1,500 hours a year costs $15 billion a year. There are about 4.7 million home health and personal care aides alone ([BLS](https://www.bls.gov/ooh/healthcare/home-health-aides-and-personal-care-aides.htm)), though not all of them would qualify.
 ### Worker voice, too
 A formula keeps lobbyists out, but it also leaves workers out. Minnesota's board shows another way: workers, employers and the state set minimum pay together, and the public rates pay for it. The two fit together. States can set up boards like Minnesota's for qualifying work, and the federal supplement comes on top, because states can't cut their own spending.
 ### A way off the list
 The founding plan pairs this subsidy with public research on automating the same work, and says plainly that it's meant as a bridge, not forever ([Ownership and the Floor](the-floor.md)). The formula makes the exit automatic. The wage test is measured without the supplement, so the supplement itself can't push an industry off the list. When real pay rises, because of automation, higher public rates or anything else, the industry drops off, fading out over two reviews rather than all at once. For care work, the bridge will probably be long. It ends when the public pays what the work is worth.
 ## What this doesn't solve
 - **Some essential work won't qualify.** Where families, not the public, pay most of the cost, the formula leaves the work out. That may include a lot of child care, where D.C.'s evidence comes from. Families who pay for care themselves, and people who care for relatives unpaid, get nothing from this. That's the price of a rule that can't be bent. States can still do what D.C. did.
 - **The formula will be fought over.** Industries will argue about how their work is classified and what counts as public revenue. Checking workers against public program records, not just the codes employers pick, is the defense. It isn't perfect.
 - **Capture isn't ruled out.** The rules catch pay cuts, including cuts in benefits, and states cutting their rates. They can't catch every raise that would have happened anyway.
 - **It costs real money.** Tens of billions of dollars a year is plausible once home care and nursing homes qualify, and much more if hospitals do. That's a choice about what care workers are paid, and the page states it so voters can make it.
 - **It's federal money for work states largely pay for.** States already can, and some do, raise care workers' pay themselves. The federal role here is to make that pay not depend on where you live, and to stop states using it as a reason to pay less. That sits uneasily with leaving child care out: its workers are overwhelmingly women, and if it doesn't qualify, their pay still depends on their state.
 - **Congress can still change the formula.** It's harder to bend than a list, not impossible.
@@ -16,5 +16,6 @@ The fix is a structure between firms, and Mondragon already built it:
 - **Firms pool a slice of profits into a mutual solidarity fund.** The fund absorbs shocks. A firm having a bad year draws support instead of dying.
 - **When a firm does die, the federation redeploys its workers into member firms.** Your company failing stops meaning your life failing. *This* is what licenses healthy risk-taking: not lower stakes on paper, but a floor under the fall.
 - **The fund becomes a second lender.** Over time, the federation (financed by its members and by the indivisible reserves of dissolved co-ops) becomes a source of patient capital that doesn't depend on the public bank at all. That is the path to the co-op sector outliving the political coalition that started it.
 - **Federations can insure their members' savings.** A federation can run its own savings insurance pool, as long as it meets the national standards and reinsures with the others. Its co-ops' workers are then covered close to home (see [Protecting Members' Savings](savings-guarantee.md)).
 Membership is voluntary, but the incentives all point in: unfederated co-ops face the concentration problem alone.
@@ -63,7 +63,7 @@ These are the ways a co-op can reward founders without selling the firm. Each is
 - **Member capital accounts.** A founder builds up an account like every other member, from year one. See [Member Capital Accounts](capital-accounts.md).
 - **A founding share.** For the first ten years, 10% of the members' profit pool is set aside for the founding members. It's split among everyone who was a member in the first three years, in proportion to how much of that time they were there. So the people who took the early risk get paid for it, including the first hires, not only the people named in the paperwork. And because it's a fixed slice of the pool, not extra votes or weight per head, founders gain nothing by keeping the co-op small.
- **Back pay for unpaid early work.** If founders take reduced pay before the business has revenue, the difference is recorded as a debt the co-op owes them. The limits:
+- **Back pay for unpaid early work.** If founders take reduced pay before the business has revenue, the difference is recorded as a debt the co-op owes them. Pay can't go below the minimum wage once the co-op exists ([Owners Are Still Workers](labor-law.md#founders-unpaid-work)). The limits:
  - It's valued at no more than the pay the co-op sets for the same job once it has revenue.
  - It earns interest at the Treasury rate.
  - It ranks behind the bank, can't be repaid from the bank's loan money, and isn't repaid while any bank payment is late.
@@ -81,4 +81,4 @@ None of this replaces a large exit. The model is betting on three kinds of found
 2. **Groups of workers founding together.** When the "founders" are the first ten employees, the gap between founder and worker mostly disappears.
 3. **People who value what the co-op offers**: control, stability, and a firm that can't be sold out from under them.
-Whether there are enough of them is an empirical question. [The pilot](pilot-spec.md) publishes the founders' backgrounds, including their previous earnings where the data allows, so that if the strongest founders stay away, it shows. If the portfolio fails, the first question will be "was it co-ops, or was it who applied?", and the data should be able to answer it.
+Whether there are enough of them is an empirical question. [The pilot](pilot-spec.md) publishes the founders' backgrounds, including their previous earnings where the data allows, so that if the strongest founders stay away, it shows. If the portfolio fails, the first question will be "was it co-ops, or was it who applied?" [Co-ops or Their Founders?](who-founds.md) sets out how the pilot answers it: founders on both sides are measured from government records, and the verdict has to say how much their backgrounds explain. It doesn't change pass or fail. If the lock keeps strong founders away, that's part of what the lock does.
@@ -0,0 +1,102 @@
 ---
 title: Does Sharing the Profit Mean Less Effort?
 section: The Co-op
 order: 21
 summary: In a big co-op, your extra effort barely moves your own profit share, so the model leans on what the evidence points to (small teams, open books, team bonuses the members design, trust) and sets a fair, fast process for the rare member who won't do the work, with protections so it can't be turned on the wrong people.
 ---
 # Does Sharing the Profit Mean Less Effort?
 Here's the oldest objection to shared ownership. In a co-op of 1,000 members, if you work hard enough to add $1,000 to the profit, your own share goes up by about a dollar, less after the reserve. Everyone else's goes up by a dollar too, including anyone who didn't bother. So why work harder? Economists call it the free-rider problem, or the 1/N problem: with N members, you get 1/N of what you add.
 The founding plan's answer is culture and structure: co-ops hold members to their share of the work, and groups of co-ops keep each unit small enough that people notice. This page checks that against the evidence and turns it into rules.
 ## What the evidence says
 **Workers can tell who isn't pulling their weight, and many act on it.** A large study surveyed workers at over 300 worksites in 14 companies with group incentive pay, like profit sharing or employee stock, and added questions to a national survey. These were conventional companies, not co-ops. Most workers said they could tell when a co-worker was shirking. Many said they would talk to that person or report it, and many said they had. Acting on it was more common where workers had a real stake in the results, in smaller workplaces, and where relations with management were good. Workplaces where more workers acted also reported that co-workers worked harder and the workplace worked better ([Freeman, Kruse and Blasi, 2008](https://www.nber.org/papers/w14227)). That's a link, not proof of cause: better-run workplaces may simply produce both.
 Three details matter for this model:
 - **Group incentives went with other things:** teams, training, varied work, light supervision and decent base pay. On their own, they did less.
 - **Size mattered, and so did trust.** The link was strongest in the smallest workplaces and weaker in the largest. But it held in larger companies where workers trusted management. The authors' reading: workers act to raise output only when they're confident they'll share in the gains.
 - **A small stake can backfire.** Where the profit-sharing bonus was small, eligible workers were *less* likely than others to act against a shirker. The authors think a shared bonus makes people fear co-workers will resent them for speaking up, and a small bonus isn't worth that. In a co-op of 1,000, everyone's slice of a single person's effort is small.
 **Ownership doesn't seem to hurt performance.** A review of 102 studies covering nearly 57,000 firms found employee ownership had a positive but very small link with firm performance (a correlation of 0.04), with no clear difference by firm size ([O'Boyle, Patel and Gonzalez-Mulé, 2016](https://doi.org/10.1111/1748-8583.12115), as summarized by [LEP](https://www.economicpossibility.org/sources/employee-ownership-and-firm-performance-a-meta-analysis)). That covers employee ownership in general, not co-ops specifically. In France, worker co-ops were as productive as conventional firms or more so ([Fakhfakh, Pérotin and Gago, 2012](https://ideas.repec.org/a/sae/ilrrev/v65y2012i4p847-879.html)), though that's co-ops that survived, under French law.
 **What the evidence can't settle.** None of it is an experiment, none of it studied co-ops of thousands of members governed one member, one vote, and there's no direct evidence on the dismissal process below. So these rules are a starting point, and the pilot measures whether they work.
 ## Required, and up to each co-op
 Governance is up to each co-op ([Worker Ownership](worker-ownership.md)). So this page separates two things:
 - **Required** in every locked co-op's charter: the protections in the dismissal process, protections for disability, pregnancy and leave, the rules on bonuses, and the reporting.
 - **Standard bylaws,** which a co-op can change by vote: how teams are organized, how often the books are shared, and who hears a dismissal first.
 ## Small teams, open books
 People notice what their co-workers do in teams, not in firms of thousands. The standard bylaws organize work in teams small enough that everyone knows what everyone else does, and give each team its own numbers: what it produced, what it cost, how much work had to be redone.
 Where a line of business gets big enough to be its own firm, it can become one, as Mondragon's co-ops did ([When Growing Means Sharing](growth.md)).
 The standard bylaws share results with every member every quarter, or every month once a co-op has more than 50 workers, and offer training in reading them. The [federation](federation.md) supplies templates and training, so small co-ops don't have to build their own.
 ## Team bonuses the members design
 The profit share is split equally per hour worked, and that doesn't change. But pay can include bonuses ([Who Sets the Pay](pay.md)), and a co-op can pay team bonuses tied to results the team can see and affect. The study found that the bigger the gain-sharing bonus, the more workers acted against shirking.
 The required rules keep bonuses from becoming a way to reward friends or push people too hard:
 - **Members approve the formula before the year starts,** in writing. Managers apply it. They don't pick who gets what.
 - **A team's bonus is split among its members by hours worked,** not by a manager's choice.
 - **The total is capped** at a share of profit set in the bylaws, and it's reported in the co-op's pay-gap figures by gender and race.
 - **Measure quality and safety, not just speed:** work that had to be redone, waste, injuries. Customer ratings can't be used unless they're checked every year for bias by race, gender, age and disability, because customers can rate some workers lower for the same work.
 - **Measured per hour, with protected leave left out.** A teammate's parental leave, medical leave or accommodated schedule can't lower the team's numbers.
 - **How work and costs are split between teams is published,** and a team can challenge its numbers.
 Bonuses still stay within the approved pay bands and count toward the pay ratio. Bonuses that push pay above the going rate give the reserve its share ([Investing for the Long Run](the-long-run.md)).
 Managers need a reason to deal with problems too. The board can tie part of managers' pay, within their bands, to how their units do, and the board, not the teams they manage, reviews them.
 ## When a member won't do the work
 Holding members to their share of the work has to mean something specific. Otherwise it means nothing, or it means removing whoever a majority dislikes. So every co-op's charter includes this process.
 **Help first.** Before any warning about performance, the co-op checks for a cause it has to accommodate, like a disability, pregnancy or caregiving leave, and offers a reasonable change. Performance is judged against the accommodated schedule. Then comes a written plan to improve, with training or a move to other work if that fits. These protections apply however small the co-op is, even below the size where federal discrimination law starts.
 **Then a fair, fast decision.**
 - **Written charges and the evidence,** at least 10 days before the hearing.
 - **A hearing** before a panel of members drawn by lot, not including the person's own team, or, in a co-op of fewer than 15 members, before all the members except the person and whoever raised the complaint. The person can bring a co-worker or union representative.
 - **Just cause, proved by the co-op.** The co-op has to show it's more likely than not.
 - **A written decision within 30 days** of the charges.
 - **An outside arbitrator on request,** from a list the federation keeps, on appeal. If the dismissal is overturned, the person gets their job back with back pay.
 - **Serious misconduct,** like theft or violence, allows suspension with pay while the hearing happens.
 Co-ops that hire managers can let them dismiss members directly. The member can still take it to the hearing and the arbitrator, and gets their job back with back pay if it's overturned.
 **Protections that can't be waived.**
 - **No retaliation.** If a member is dismissed within 12 months of organizing, filing a complaint, reporting a safety problem, running for the board or leading opposition in a vote, the co-op has to prove the dismissal had nothing to do with it.
 - **Quitting under pressure counts.** A member who quits within 60 days after a transfer, a cut in hours or pay, or being left out of a bonus can ask for a hearing, and the quit is treated as a dismissal. That's the same test [When People Don't Stay Long](high-turnover.md#no-pushing-people-out-before-theyd-join) uses for workers on probation.
 - **Probation isn't a loophole.** Workers on probation get a shorter version of the same hearing. Dismissing them for performance still counts in the test against pushing people out before they'd join. Only the narrow reasons listed there, like a client's safety, are excluded.
 - **The savings are safe.** A dismissed member's [capital account](capital-accounts.md) is fixed on the day they leave, they get a share of that year's profit for the hours they worked, and it's paid on the normal schedule. Nothing can be taken out of it without a court or arbitrator's ruling.
 **Published.** Every year the co-op reports warnings, hearings and dismissals by gender, race, age and disability, along with the results of an anonymous survey on workload and bullying.
 ## Where the share is small anyway
 In low-margin co-ops, like home care, a full profit share is worth a couple of thousand dollars a year, on top of the pay, schedules and say in the work that members get. There, the study's warning applies: a small shared stake may not motivate anyone. So those co-ops can't count on the profit share to do the work. Pay, schedules, training and a real say in how the work is done matter more.
 ## Measuring it
 The pilot publishes value added per hour worked (what a firm's work adds, after the cost of materials and services it buys, before wages and profit are split), compared with matched conventional firms ([The Pilot, in Numbers](pilot-spec.md#what-gets-measured)). It follows each co-op over time as it grows, in size bands set in advance, and accounts for how much equipment each firm uses per hour. Spin-offs are counted with their parent, and co-ops that close stay in the results. Injuries and overtime are published alongside, so output bought with worn-out workers doesn't count as success.
 If co-ops fall behind as they grow, that's evidence the 1/N problem is real, and it gets reported that way.
 ## What this doesn't solve
 - **Big co-ops are still harder.** People hold each other to account best in small places. Teams and spin-offs help. A co-op of 10,000 will still feel more distant than one of 30.
 - **Everyday pressure doesn't reach a hearing.** Co-workers who hold each other to account can also pick on people who are different. The protections, the published figures and the anonymous survey make that visible. They can't stop all of it.
 - **The process takes time.** A month from charges to decision is fast for a fair process and slow for a small business with a problem. That's the trade.
 - **Team bonuses can pit teams against each other.** Members choose what to reward, and some will choose badly.
 - **The evidence is thin.** The best study asks workers what they'd do and what they've done, in conventional firms. The pilot is the first real test of these rules in co-ops.
@@ -0,0 +1,121 @@
 ---
 title: When Growing Means Sharing
 section: The Co-op
 order: 29
 summary: Members who split profit equally have a reason to turn down growth that earns less per worker than they already do, so the model lets co-ops grow by starting new co-ops they invest in, under rules that stop that becoming a way to push lower-paid work out, and measures whether they grow as fast as other firms.
 ---
 # When Growing Means Sharing
 A conventional owner takes on a new line of business if it earns more than the money it ties up would earn elsewhere. How many people it employs doesn't matter.
 A co-op's members decide differently. After the [ramp](worker-ownership.md), they split profit equally. So a new line has to earn at least as much per worker as the co-op already does, or it lowers everyone's share. **A line that makes money can still make each member poorer, unless it's set up as a co-op of its own, which this model makes the standard path.** Economists have known about the problem since Benjamin Ward described it in 1958, and it's a real weakness.
 ## A worked example
 A 40-member co-op has a members' profit pool, the part left after the reserve and the federation fund ([Member Capital Accounts](capital-accounts.md#where-each-years-profit-goes)), of $800,000 a year. That's $20,000 per member.
 It has a chance to open a new line. The line needs 20 more workers, pays them normal salaries, and adds $200,000 a year to the pool: $10,000 per new worker. Suppose that's comfortably more than the money it ties up would earn anywhere else. A conventional owner would take it.
 For the members, it depends on the ramp. New members start at a fifth of a full share and reach a full share after five years. The founding plan allows up to ten.
 | Year | Each full share, 5-year ramp | Each full share, 10-year ramp |
 | --- | --- | --- |
 | No new line | $20,000 | $20,000 |
 | 1 | $22,700 | $23,800 |
 | 3 | $19,200 | $21,700 |
 | 5 | $16,700 | $20,000 |
 | 10 and after | $16,700 | $16,700 |
 | **Total over 10 years** | **$181,000** (vs. $200,000) | **$199,000** (vs. $200,000) |
 (The 10-year ramp here starts at a tenth of a share and adds a tenth each year.)
 **Tax law changes this table.** It assumes the part of a share new members haven't reached yet goes to the other members. Under the model's default tax rules, it goes to the co-op's reserve instead ([How a Locked Co-op Is Taxed](taxes.md#the-tenure-ramp)). Then each full share drops to about $16,700 from the first year, and in year 1 the reserve gets about $267,000 extra with the five-year ramp. The table holds only for a co-op that pays the difference as wages for years of service, at the cost of payroll tax. Either way, that makes the spin-off route below more important.
 A member near retirement comes out ahead either way. A member with twenty years ahead loses about $50,000 over that time with a five-year ramp, and about $35,000 with a ten-year one. Counting money later as worth less than money now (at 7% a year), those losses are about $23,000 and $10,000. The gains come first and the losses later, so members who expect to leave soon and members who expect to stay long will vote differently. The ramp softens the problem. It doesn't remove it. In the end, **the new line has to earn the co-op's average, not just a profit, before the members come out even.**
 **Where it bites, and where it doesn't.** The gap only matters when profit per member is high. In home care, a full share is worth a couple of thousand dollars a year ([When People Don't Stay Long](high-turnover.md#the-ramp-when-people-leave-early)), so a new line that earns less costs each member a few hundred dollars at most. In a firm making tens of thousands of dollars per worker, the kind described in [What If Conservice Had Been a Co-op?](conservice.md), it's real money. And the most profitable co-ops are the ones whose growth matters most.
 ## What the evidence says
 **Co-ops are steadier, and slower to hire.** A study of Italian firms from 1982 to 1994, in the market economy with the most worker co-ops, found co-ops paid about 14% less on average. Their pay moved more with good and bad times, and their employment moved less, in both directions. When business picked up, co-ops added fewer workers than conventional firms. The co-ops in that data were larger on average than conventional firms, not smaller, though that comparison doesn't account for which industries they're in ([Pencavel, Pistaferri and Schivardi, 2006](https://docs.iza.org/dp2188.pdf)). A study of every co-op and conventional firm in Uruguay's social security records from 1996 to 2005 found the same pattern: co-op pay responds more to shocks, and employment less ([Burdín and Dean, 2009](https://doi.org/10.1016/j.jce.2009.08.001), as summarized by [Pencavel, 2012](https://docs.iza.org/dp6932.pdf)).
 In France, a comparison across many industries found worker co-ops grew as fast as conventional firms or faster ([Fakhfakh, Pérotin and Gago, 2012](https://ideas.repec.org/a/sae/ilrrev/v65y2012i4p847-879.html)).
 Ward's starkest prediction, that co-ops would *cut* jobs when prices rise, doesn't show up. What shows up is slower hiring and steadier jobs. The steadiness that protects members in bad years is the same thing that makes them slow to hire in good ones.
 One caution: co-ops in Italy and Uruguay can hire non-members. Co-ops under this model mostly can't (below). So that evidence probably understates the problem here.
 **When hiring members is costly, co-ops hire non-members instead.** The Olympia Veneer Company, the first of the Pacific Northwest plywood co-ops, started in 1921 with 125 worker-members. As founders left, the co-op bought back their shares and hired ordinary employees in their place. By 1952 fewer than 50 members were left, and in 1954 they sold the company for a handsome return. Mondragon's industrial co-ops saw non-members reach 29% of their workforce in 2000, before new rules brought it down to 12% by 2008. Counting the ordinary companies Mondragon owns in Spain and abroad, non-members went from 10% of its workforce in 1990 to 70% in 2007 ([Pencavel, 2012](https://docs.iza.org/dp6932.pdf), citing Arando and others, 2011).
 That route is closed here. [The lock](the-lock.md) requires members to work at least three-quarters of the hours, and any company a co-op controls is locked too. That stops a co-op from turning into a small club of owners with employees under them. But it also means a co-op can't get around dilution by hiring outsiders. So dilution bites *harder* here than in co-ops that allow hired labor. The model accepts that, because the alternative is the road the plywood co-ops took out of being co-ops.
 ## The model's answers
 ### 1. Grow by starting new co-ops
 Mondragon found a way through early. When its first factory, Ulgor, grew new lines of business, it turned them into co-ops of their own. Its electronics division became a new co-op, Fagor Electrónica, in 1965, "continuing with the plans for creating spin-offs from Ulgor" ([Mondragon, *The Mondragón Co-operative Experience, 1956–2012*](https://laboress-afrique.org/boostsess/public/uploads/pdfdocuments/files/mondragon_1956_2012.pdf)).
 But spin-offs weren't the whole system. Ulgor and its spin-offs formed a group, Ularco, that began partly pooling its co-ops' profits in the late 1960s and pooled them completely from 1976. When Mondragon reorganized in 1992, it planned to pool between 15% and 40% of profits across each of its new sectors. Workers moved between co-ops when one shrank. From 1979 to 1983, when Ulgor had to cut 1,300 of its 3,500 jobs, 145 members split off to form a new co-op and others moved within the group, and every move was voluntary ([Morris, *The Mondragón System*, 1992](https://www.ilsr.org/wp-content/uploads/files/images/mondragon.pdf)).
 The model makes spin-offs the standard path for a new line that earns less per worker than the parent:
 - **The new line becomes its own locked co-op,** with its own members, its own profit split, and a [lock share](the-lock.md#how-the-lock-is-made-to-hold) held by an independent lock-holder from the day it's founded.
 - **The parent invests, but doesn't control.** It can fund the new co-op from its reserve, on the terms any investor gets ([Capital, After](capital.md)): repayment plus a share of profits, for at most 15 years, with no vote. If the new co-op borrows from the bank, the parent's claim ranks behind the bank and needs the bank's approval, like any other.
 - **Reserve money stays reserve money.** When the new co-op repays the money, it goes back into the parent's reserve. Only the profit share counts as profit, and the reserve takes its cut of that too ([Investing for the Long Run](the-long-run.md)). No single spin-off can take more than a quarter of the parent's reserve.
 - **The spin-off is still a co-op.** Its own workers become members, and it's in the same federation as the parent, so a failure in one doesn't leave the other's workers with nothing ([The Federation](federation.md)).
 In the example, the parent's members keep their $20,000 and earn a return on what they put in. The 20 new workers build full shares of their own co-op's profit instead of partial shares of someone else's. Without the spin-off, the members would most likely have turned the line down, and the jobs wouldn't exist.
 This matters most for exactly the case the founding plan worried about: **expansion that takes a lot of capital, into lower-margin work.** The parent's reserve can pay for it without anyone's share shrinking.
 **Yes, this makes richer and poorer co-ops.** The spin-off's members earn a smaller profit share than the parent's. That's the honest cost. The model's line is that inside one firm, where people share a vote and a set of books, shares are equal. Between firms, they aren't, as they aren't between any two companies. What stops that becoming a way to push lower-paid workers out is the next set of rules.
 ### 2. Rules so spin-offs can't be abused
 - **New lines only, unless the workers choose to go.** A co-op can't spin off work its members already do unless a majority of the workers whose jobs would move vote for it. Anyone who doesn't want to move keeps their place in the parent. A spin-off that sells mostly to the parent is treated as part of the parent for the membership rule.
 - **Deals between parent and spin-off are insider deals.** Prices, fees, rent and contracts between them must match what outsiders would pay, and they're checked every year, like any [insider deal](pilot-safeguards.md#the-hidden-boss). The lock's limit on exclusive contracts applies: no contract gives one party a claim on most of what the other produces for longer than five years ([The Lock](the-lock.md#closing-the-back-doors)).
 - **Assets move at an independent appraisal.** Equipment, customers or buildings moved to the spin-off count as a sale of part of the business, which goes through the lock-holder. The parent keeps any debts and obligations from before the split. So a spin-off can't be used to park a failing line or old liabilities.
 - **Those who move don't vote on the money.** Parent members who plan to join the spin-off can't vote on the parent's investment in it. They keep their tenure on the ramp only if the spin-off's founding papers agree to it, so senior members can't move over and dilute the new members in their turn.
 - **A second opinion on big investments.** Before a parent puts more than a tenth of its reserve into a spin-off, the federation gives a written opinion on the plan to the parent's members. It's advice, not a veto. The investment is the members' call.
 ### 3. Sharing across the group, if the co-ops choose
 Parent and spin-off can agree to pool part of their profits and split it per member across both, as Mondragon's groups did. That narrows the gap between them. It also brings back part of the dilution the spin-off avoided, which is why it's up to them. A pool of 15% to 40%, the range Mondragon settled on, is a reasonable place to start. The federation offers a standard agreement.
 ### 4. Where a line can't be split off
 Some growth can't be spun off. More customers for the same service, or a cheaper product sold by the same team, can't easily become a separate company. There, the dilution stays. What softens it:
 - **The ramp.** A co-op can choose the long end, ten years. That comes at a cost to newer members, who are more often younger or outsiders, and to workers who don't stay long ([When People Don't Stay Long](high-turnover.md#the-ramp-when-people-leave-early)).
 - **The founding share is a fixed slice.** Founders' extra reward is a set share of the pool, not extra weight per head, so founders gain nothing by keeping the co-op small ([The Founder Problem](founder-problem.md)).
 - **Growth that earns the average is free.** Adding workers to work that's as profitable as the rest doesn't dilute anyone. The problem is only lower-margin growth.
 - **Someone else can take it.** A line the members turn down can be offered to the federation, or to a group of workers, to start as a new co-op.
 ### 5. Measuring it
 The pilot already publishes how many jobs its co-ops create ([The Pilot, in Numbers](pilot-spec.md#what-gets-measured)). It also publishes, with the comparisons filed in advance:
 - **Job growth compared with matched conventional firms,** in full-time-equivalent jobs, counted both with and without spin-offs, and broken out by thirds of value added per worker (a way to compare how productive firms are that doesn't depend on how a co-op splits pay and profit). The gap should show up most in the most productive co-ops.
 - **Expansions voted down.** Each co-op reports major expansion proposals and how members voted on them.
 - **Spin-offs:** how many, how they do, and the gap in pay and profit share per member between each parent and its spin-offs.
 - **Who gets hired.** Applicants and hires by gender and race, compared with the matched firms, since members who share profit have a reason to hire few people, and people like themselves.
 Spin-offs can borrow from the bank. Because they start with an established co-op behind them, they're reported separately and don't count in the pilot's main test, the same way the pilot handles businesses that aren't really new ([Guarding the Pilot](pilot-safeguards.md#relabeling-an-old-business-as-new)). That keeps them from flattering the survival numbers, and keeps a struggling low-margin spin-off from counting against the test.
 If the most productive co-ops grow much more slowly than similar conventional firms, that's evidence the problem is real where it matters most, and it gets reported that way.
 ## What wasn't done
 - **Profit shares by division.** Paying each member partly from their own division's profit would remove most of the problem inside one firm. But the founding plan says that after the ramp, everyone's share is identical. Spin-offs do create differences, but between separate firms with separate votes, not between people who govern the same firm together.
 - **Profit shares in proportion to pay.** Splitting profit by pay instead of equally would make lower-paid new hires cost the others less. That also breaks the equal share.
 - **More room for non-members.** It would make growth easier, and it's the road the plywood co-ops took out of being co-ops.
 ## What this doesn't solve
 - **Not every line can be spun off.** Where growth has to happen inside one firm, members still have a reason to turn down work that earns less than their average. Reporting the expansions they vote down makes that visible. It doesn't stop it.
 - **Spin-offs cost something.** Separate books, a separate board and separate legal costs. For a small line, that may be more than it's worth. And splitting a line off a firm that shares its customers and managers can make both work less well.
 - **Reserve money can be wasted.** Money that can't be paid out is tempting to spend. Fagor, Mondragon's appliance maker, overexpanded and went bankrupt in 2013 ([Investing for the Long Run](the-long-run.md#whats-still-open)). The quarter cap and the federation's opinion are limits, not a test of whether an investment is wise.
 - **The parent profits from people it doesn't work with.** For up to 15 years, the parent collects a share of the new co-op's profit. It's finite, it carries no vote, and dealings between them are checked at outside prices. That's the model's line between renting capital and owning people's work ([Capital, After](capital.md)). Some will say it's still the wrong side of that line.
 - **Richer and poorer co-ops.** Spin-offs will often be lower-paid than their parents, and lower-margin work is disproportionately done by women and workers of color. Voluntary pooling and published gaps are the answer offered. Neither closes the gap.
 - **Steady employment cuts both ways.** Co-ops keep people on in bad years and hire slowly in good ones. Where that means fewer jobs than the business could support, the people who don't get hired pay for it, and they don't get a vote.
@@ -0,0 +1,105 @@
 ---
 title: When People Don't Stay Long
 section: The Co-op
 order: 28
 summary: In jobs like home care, most workers leave within a year or two, so the model makes membership automatic after a short probation, keeps the buy-in small and out of people's paychecks, and guards against co-ops that push people out before they'd join.
 ---
 # When People Don't Stay Long
 This model's co-ops are run by their members, and it takes membership seriously. After a trial period (probation) of at most 12 months, workers become members, and members must do at least three-quarters of the work hours ([The Lock](the-lock.md)). That rule stops a co-op from turning into a small club of owners employing everyone else.
 But in some of the jobs where co-ops matter most, people don't stay long. In those jobs, the rule as first written could fail a co-op that was doing everything right.
 ## The problem
 **Home care loses most of its workers every year.** Home care aides help older and disabled people at home: bathing, meals, medication. An industry benchmarking survey published in 2024 put home care worker turnover at about 79% a year ([Home Health Care News, 2024](https://homehealthcarenews.com/2024/07/home-cares-industry-wide-turnover-rate-reaches-nearly-80/)). Turnover here means the number of people who left in a year, divided by the average number of workers.
 **Co-ops do better, but still lose a lot of people.** In 2017 there were 14 home care co-ops in nine states, employing about 2,400 caregivers. One account puts their turnover at about 38%, against 82% for the industry at its peak ([OnLabor, 2022](https://onlabor.org/worker-retention-in-homecare-could-cooperatives-be-the-solution/)). That's a small, uncontrolled comparison, but it points one way.
 **With that much turnover, many workers never get past a 12-month probation.** If people leave at a steady rate through the year, here's roughly what share of the workforce at any moment has been there long enough to join:
 | Turnover per year | Past 3 months | Past 6 months | Past 12 months |
 | --- | --- | --- | --- |
 | 20% | 95% | 90% | 82% |
 | 38% (home care co-ops) | 91% | 83% | 68% |
 | 65% | 85% | 72% | 52% |
 | 80% (home care industry) | 82% | 67% | 45% |
 This is a simple model, and it counts people, while the rule counts hours. Both of those make the real picture somewhat better: many people leave in their first few weeks, and people who stay tend to work more hours. But the point holds. **With a 12-month probation, a home care co-op can fail the three-quarters rule even if every eligible worker joins.**
 **The biggest real example shows the other half of the problem.** Cooperative Home Care Associates in the Bronx was started in 1985 by 12 home health aides and is one of the largest worker co-ops in the country. It's also unionized, with 1199SEIU ([CHCA](https://www.chcany.org/about)). It offers ownership after just three months. But workers have to choose to buy a $1,000 share, paid over time from their paychecks. In 2005, about 70% of its aides were owners, and 95% to 97% of those owners worked full time, so by hours it may well have met this model's rule. At a smaller sister co-op in Philadelphia, about 40% of aides were owners ([PHI, 2005](https://www.phinational.org/wp-content/uploads/legacy/clearinghouse/homecarecooperatives_workerownership.pdf)). By 2021, one account put CHCA at over 1,000 owners among 2,600 employees ([OnLabor](https://onlabor.org/worker-retention-in-homecare-could-cooperatives-be-the-solution/)). That count may include office staff, and it's by head, not by hours. But it suggests that when membership has to be chosen and paid for, many workers don't take it up.
 To be fair to CHCA: it has stayed a real, worker-governed co-op for about 40 years with many workers who weren't owners. A union contract covering everyone helps explain why. This model still sets a membership rule, because not every co-op will have CHCA's history or its union.
 ## Two bad answers
 - **Loosen the three-quarters rule.** That lets a co-op run on non-members again, which is exactly the slide the rule exists to stop. In a high-turnover business, "most of the workers aren't members" can easily become permanent.
 - **Exempt care work.** That would exempt the co-ops whose workers are least able to protect themselves.
 ## The answer: let people in sooner, by default, at no cost up front
 ### Membership is automatic
 When probation ends, a worker becomes a member **unless they say no**. They don't have to apply, and nobody has to approve them.
 This matters more than it sounds. When one large company started signing new workers up for its retirement plan automatically, 86% of new hires took part, compared with 37% of workers hired just before, at the same length of time on the job. The biggest gains were among the lowest-paid, whose participation went from 13% to 80% ([Madrian and Shea, 2000](https://www.nber.org/papers/w7682)). People mostly stay with whatever happens by default. So the default should be membership.
 A retirement plan and a co-op aren't the same, and the same study found that people signed up by default mostly stayed passive about their choices. A member signed up by default may not act like an owner at first. The model's bet is that having the vote is the precondition for using it.
 - **Saying no is easy and goes through someone independent.** A worker can opt out by phone, in person or in writing, in their own language, with the co-op's [lock-holder](the-lock.md#how-the-lock-is-made-to-hold), the independent body that guards each co-op's lock, rather than with their manager. So managers can't quietly talk people out of joining. Anyone who opts out can change their mind within 30 days, or join later at any time.
 - **Members and non-members get the same pay and schedules.** A co-op can't pay non-members more, or give them better shifts, to keep them from joining.
 - **People who freely opt out don't sink the co-op.** Hours worked by people who opted out through the lock-holder count toward the three-quarters rule, up to one-tenth of all hours. Beyond that, they count as non-member hours. So a co-op isn't punished for a few workers' free choices, but it can't run on them either.
 ### Joining costs nothing up front
 Existing home care co-ops charge refundable fees of $25 to $1,000, often taken from paychecks a little at a time (PHI, 2005). That's a real cost for someone earning an aide's wage, and in many states a deduction from pay needs the worker's written permission.
 So in this model, **the buy-in comes out of the member's own profit shares, not their paycheck.** It's capped at $1,000. Until it's covered, part of each profit share goes toward it instead of being paid out in cash, though never the cash a member needs to pay tax on their share. A member can choose to pay it faster from their pay if they ask in writing. Either way, it sits in their own [capital account](capital-accounts.md) and is paid back to them on the account's normal schedule, whether or not they stay.
 ### A short probation
 Probation still can't be longer than 12 months. But a co-op can make it shorter, and the model's standard bylaws use three months, as Cooperative Home Care Associates does. The table shows why a high-turnover co-op will want that: at 38% turnover, a three-month probation puts about 91% of the workforce past it.
 **Why letting people in early is affordable.** It's the [profit share ramp](worker-ownership.md). A new member starts with a small slice of the profit that grows over the years. So a new member takes only a small slice of the profit at first. The rest of what their hours earn goes to the co-op's reserve, not to the other members, because of how federal tax law treats profit shares ([How a Locked Co-op Is Taxed](taxes.md#the-tenure-ramp)). What the new member gets right away is the vote. Under this model, that doesn't wait. Workers on probation get a profit share too, in cash, at the rate of a member just starting out.
 ### No pushing people out before they'd join
 If membership comes at three months, a co-op that wanted to stay a small club could let people go at two and a half, or cut their hours until they quit. So:
 - **Every hour counts, whoever signs the paycheck.** Hours worked on the co-op's business by staffing-agency workers, contractors or a related company's staff count as non-member hours. A co-op can't get around the rule by putting its workers on someone else's payroll.
 - **Probation counts across rehiring.** Time on probation adds up across every stint at the same co-op within three years. Letting someone go and rehiring them doesn't restart the clock.
 - **Pushing people out counts as letting them go.** If someone on probation quits within 60 days after their hours were cut by a quarter or more, or after they lost their regular clients, it counts as the co-op's decision, not theirs.
 - **The test looks at results.** Each year the co-op reports how many people it hired, how many it let go (counted as above) before they could join, and why. The lock-holder compares that with the same co-op's record after people become members, and with similar co-ops. It looks only once there are enough cases to mean something, at least five over three years. Dismissals for a documented reason, like a client's safety or a failed background check, don't count. A worker can also complain directly to the lock-holder.
 - **A finding has to be earned.** Before a pattern counts against the co-op, the co-op sees the evidence and can answer it. A confirmed pattern counts as failing the membership rule for that year.
 ### A start-up period
 A new co-op that's hiring fast will always have many people on probation. So the rule phases in. There's no hours test in the first year, members must do at least half the hours in the second, and three-quarters from the third on. Automatic membership and the 12-month limit apply from day one.
 ### Unions stay
 Becoming a member doesn't end a union contract. A union can keep representing workers, members and non-members alike, as 1199SEIU does at CHCA. Federal labor law may not protect members' own organizing, though, so the charter does ([Owners Are Still Workers](labor-law.md#union-rights-the-biggest-gap)). Members are also paid for time spent on the co-op's committees and board, as CHCA and its sister co-op already do (PHI, 2005), so taking part in governance doesn't cost an aide a shift.
 ## The ramp, when people leave early
 The founding plan sets the profit share ramp at five to ten years. In a job where many people stay two or three, most will leave before they ever reach a full share. At 38% turnover with a three-month probation and a five-year ramp, only about one worker in seven has a full share at any moment. That's a real cost of the ramp, and it's worth saying plainly.
 Some things make it less harsh than it sounds:
 - **The vote doesn't ramp.** A member who stays one year has the same vote as one who stays thirty.
 - **Time on the ramp adds up.** Someone who leaves and comes back within a few years picks up where they left off, and protected leave, like parental or medical leave, counts as time worked ([Worker Ownership](worker-ownership.md)). That matters in care work, where many workers, most of them women, step out for a while to care for their own families.
 - **Whatever they built goes with them.** A member's account keeps paying out on its normal schedule after they leave, and small balances are paid all at once ([Member Capital Accounts](capital-accounts.md#how-its-paid-out)).
 - **In care work, the profit is small anyway.** At home care's thin margins, a full share is worth a couple of thousand dollars a year, and a typical member's is less ([Member Capital Accounts](capital-accounts.md)). For these workers, most of what matters is pay, hours and a say in how the work is done.
 A co-op can choose the short end of the ramp. This page doesn't shorten it further, because the founding plan sets that range on purpose. A longer ramp was meant to let a co-op hire without every new member cutting into everyone else's share right away. Under tax law, it only does that if the co-op pays the difference as wages for years of service ([How a Locked Co-op Is Taxed](taxes.md#the-tenure-ramp)). Whether low-margin, high-turnover co-ops should be allowed a much shorter ramp is an open question ([Open Problems](open-problems.md)).
 ## What this doesn't solve
 - **Ownership doesn't fix the pay.** Home care wages are low largely because much of the work is paid for by public programs like Medicaid, at rates the agencies don't set. A co-op can't pay more than it's paid. It can offer steadier hours, training and a say, and co-ops seem to keep people longer. But the pay problem needs better public rates, rules that send more of those rates to workers, and unions bargaining for them, along with [the floor](the-floor.md).
 - **The numbers are rough.** Turnover varies a lot between agencies, the home care industry figure comes from a survey of agencies that chose to take part, and the co-ops' 38% comes from a small count. The pilot will measure this directly and report [results by industry](pilot-spec.md#what-gets-measured).
 - **Automatic membership hasn't been tried at a large care co-op.** It should raise membership a lot. How much, and whether default members take part in governance, is unknown.
 - **A short probation means less time to judge fit.** A co-op admits people it has known for three months, and they vote. That's the trade-off the model accepts. The ramp limits what a poor fit costs in money. It doesn't limit their vote.
 - **The stable minority can still run things.** Office staff and coordinators often stay while aides come and go. One member, one vote and paid meeting time help. They don't guarantee aides a real voice.
 - **Some things need legal work.** How membership interacts with tax filing for members without Social Security numbers, with visa status, and with the asset limits of public benefits needs answers before care co-ops sign people up automatically. Federal labor law probably doesn't protect union activity by members who own the firm. The charter protects it instead, and fixing the law takes a separate bill ([Owners Are Still Workers](labor-law.md#union-rights-the-biggest-gap)).
 - **Opting out can still be pressured, and pushing people out can still be hidden.** An independent lock-holder and results-based checks make both harder. They can't make them impossible.
@@ -13,12 +13,13 @@ summary: A working model for building an economy where the people who do the wor
 This model doesn't buy, seize or convert anyone's company. Instead it builds new worker-owned companies alongside existing ones, then lets customers and workers choose between them.
- **Workers own their company.** Every member gets one vote. A share of the profits grows with tenure until long-time members split them equally. Salaries still exist, and hard jobs still pay more. Part of each year's profit builds up in a personal account that's paid out when you leave, and part goes into a permanent reserve that keeps the business investing. [Worker Ownership](worker-ownership.md), [Member Capital Accounts](capital-accounts.md) and [Investing for the Long Run](the-long-run.md)
+- **Workers own their company.** Every member gets one vote. A share of the profits grows with tenure until long-time members split them equally, per hour worked, which is how federal tax law lets co-ops pay tax on it only once. Salaries still exist, and hard jobs still pay more. Part of each year's profit goes into a personal account that pays it back a few years later on a fixed schedule, whether or not you've left, which is designed to keep it outside federal pension law, and part goes into a permanent reserve that keeps the business investing. Members can't drain it through high pay or let the equipment quietly wear out, and big bets get an outside opinion first. An insurance pool the co-ops pay for protects workers' last paychecks and part of their savings if the co-op fails. A fair, fast process deals with members who won't do the work, with protections so it can't be turned on the wrong people. Members are the co-op's employees, so they get the minimum wage, overtime and injury insurance like anyone else. Where the law leaves owners out, of unemployment insurance in some states or of union protection, the co-op's charter fills what it can. Membership comes automatically after a short probation, so co-ops in high-turnover work like home care don't end up run by the few who stay. Equal shares give members a reason to turn down growth into lower-paying work, so co-ops can grow by starting new co-ops they invest in instead. [Worker Ownership](worker-ownership.md), [Does Sharing the Profit Mean Less Effort?](free-riding.md), [When People Don't Stay Long](high-turnover.md), [Owners Are Still Workers](labor-law.md), [When Growing Means Sharing](growth.md), [Member Capital Accounts](capital-accounts.md), [How a Locked Co-op Is Taxed](taxes.md), [Protecting Members' Savings](savings-guarantee.md) and [Investing for the Long Run](the-long-run.md)
 - **A small public bank lends to worker co-ops.** It charges market rates, so it only succeeds if co-ops can really compete. Its whole job is to be willing to lend to a kind of company other banks won't. Spain, Italy and the US have all tried versions of this, and the pilot is built around what went right and wrong. [The Bank](the-bank.md) and [Has This Been Tried?](precedents.md)
- **Co-ops funded this way stay co-ops forever.** They can't be sold to conventional owners, and members can't vote to cash out what earlier members built. [The Lock](the-lock.md)
+- **Owners who want to sell to their workers can.** The bank lends for these sales on a separate track, with its own $100 million and its own test. Only healthy firms qualify, there's no new tax break, the price is capped at an independent appraisal, the seller shares the risk, and the whole workforce votes. [When an Owner Wants to Sell to the Workers](buyouts.md)
- **It runs as an honest experiment.** A one-time $350 million pilot aims to fund about 400 new co-ops. The success measures are published before the first loan. If, after twelve years, co-ops stay open about as well as similar conventional firms while paying their members fairly, and the bank earned at least what Treasury bonds would have, Congress votes on growing it. If not, it shuts down automatically. [The Test](the-test.md) and [The Pilot, in Numbers](pilot-spec.md)
+- **Co-ops funded this way stay co-ops forever.** They can't be sold to conventional owners, and members can't vote to cash out what earlier members built. An independent lock-holder can veto any attempt, including selling the business off piece by piece. If a co-op goes bankrupt, only another co-op can buy it whole, and its workers get a real chance to be that buyer. That needs an amendment to federal bankruptcy law, drafted here. [The Lock](the-lock.md), [When a Locked Co-op Goes Bankrupt](bankruptcy.md)
 - **It runs as an honest experiment.** A one-time $350 million pilot aims to fund about 400 new co-ops. The success measures are published before the first loan. If, after twelve years, co-ops stay open about as well as similar conventional firms while paying their members fairly, and the bank earned at least what Treasury bonds would have, Congress votes on growing it. If not, it shuts down automatically. It's built so that a hostile government can't quietly freeze it or rig the result, though Congress can always repeal it. It also tests, by lottery, whether serious help before launch gets more co-ops started. Part of the loan money is set aside for co-ops in lower-paid work, so the bank can't drift toward only the safest co-ops, and the verdict has to say which kinds of co-ops it covers. The pilot can't show whether co-ops lift pay at other employers. Even after a pass, a sector big enough for that is decades away nationally. So growth comes in capped stages, and that effect gets its own test in a few local markets. [The Test](the-test.md), [The Pilot, in Numbers](pilot-spec.md), [Help Before the First Loan](before-launch.md), [Who the Bank Lends To](who-gets-loans.md), [After a Pass: How Big, How Fast](scale.md) and [Making It Last](durability.md)
 - **Co-ops back each other up.** They pool part of their profits into a shared fund. If one fails, its workers are moved into others instead of being left with nothing. [The Federation](federation.md)
- **Nobody is left behind by low-margin work.** Owning a company doesn't help much when there's barely any profit to own, so a strong floor covers the rest. [Ownership and the Floor](the-floor.md)
+- **Nobody is left behind by low-margin work.** Owning a company doesn't help much when there's barely any profit to own, so a strong floor covers the rest. A fixed formula, not lobbyists, decides which low-paid work gets public help. [Ownership and the Floor](the-floor.md) and [Who Decides What's Essential](essential-work.md)
 ## What stays the same
@@ -26,14 +27,14 @@ This model doesn't buy, seize or convert anyone's company. Instead it builds new
 | --- | --- |
 | Existing companies | Nobody's company is bought or taken. Conventional firms keep conventional ownership. |
 | Markets and competition | Co-ops and conventional firms compete for the same customers and workers. |
-| Salaries | Hard and in-demand jobs still pay more. A surgeon still earns a surgeon's salary. |
+| Salaries | Hard and in-demand jobs still pay more. A surgeon still earns a surgeon's salary. Pay bands are open, and high pay needs the lower-paid half to agree. [Who Sets the Pay](pay.md) |
 | Personal property | Homes, cars, savings and tools are untouchable. |
 | Investment and big returns | Investors can still fund co-ops and make 10x or 30x. Their claim just runs out and carries no vote. [Capital, After](capital.md) |
 ## Why it matters
-This isn't mainly about money. **People deserve a say in governing the place where they spend most of their waking lives.** Today most workers are ruled by distant owners who answer to nobody who works there. Co-ops are rare, and one likely reason is that nobody will lend to them. This model fixes the financing and lets people choose. [Making the Case](the-argument.md)
+This isn't mainly about money. **People deserve a say in governing the place where they spend most of their waking lives.** Today most workers are ruled by distant owners who answer to nobody who works there. Co-ops are rare, and one likely reason is that nobody will lend to them. This model fixes the financing and lets people choose. [Making the Case](the-argument.md) and, for one real company worked through, [What If Conservice Had Been a Co-op?](conservice.md)
 ## Honest about what's unsolved
-This is a working model, not a finished one. The biggest open question is whether strong founders will start companies they can never sell. In the success case, a co-op founder ends up with a fraction of what a conventional owner would, because the rest goes to the people who work there ([The Founder Problem](founder-problem.md)). The full list of what isn't solved yet is kept in the open. [Open Problems](open-problems.md)
+This is a working model, not a finished one. The biggest open question is whether strong founders will start companies they can never sell. In the success case, a co-op founder ends up with a fraction of what a conventional owner would, because the rest goes to the people who work there ([The Founder Problem](founder-problem.md)). The pilot measures founders on both sides, so if it fails, the verdict has to say how much of that was down to who applied ([Co-ops or Their Founders?](who-founds.md)). The full list of what isn't solved yet is kept in the open. [Open Problems](open-problems.md)
@@ -0,0 +1,117 @@
 ---
 title: Owners Are Still Workers
 section: The Co-op
 order: 24
 summary: Labor laws were written for workers with a boss, so a co-op member can fall through the gaps, and the model closes the ones it can with the co-op's own rules and names the ones that need a change in the law.
 ---
 # Owners Are Still Workers
 A co-op member is two things at once: an owner of the business and someone who works there for pay. America's labor laws were mostly written for people who are one or the other. Most of them ask some version of "does this person have a boss?" In a co-op, the answer is "yes, and they also help elect the boss."
 The model puts members on the payroll as employees ([Who can borrow](pilot-spec.md#who-can-borrow)). That gets them most of the protections any other worker has, but not all, and not in every state. This page goes law by law.
 ## Wages: members are employees
 **Federal wage law covers members.** In 1961 the Supreme Court looked at a Maine co-op of women who knitted at home and were paid by the piece. It held that they were the co-op's employees, entitled to the minimum wage, even though they owned it. "There is nothing inherently inconsistent between the coexistence of a proprietary and an employment relationship," the Court wrote. What mattered was the reality: the co-op's managers set the rates and could expel members for bad work ([*Goldberg v. Whitaker House Cooperative*, 366 U.S. 28](https://www.law.cornell.edu/supremecourt/text/366/28)). Three justices dissented, saying a genuine co-op doesn't employ its own members, but that's not the law.
 So members are owed at least the minimum wage and overtime pay for every hour, like anyone else. **A profit share doesn't count toward the minimum wage.** It's paid once a year, after the books close ([How a Locked Co-op Is Taxed](taxes.md)), and a wage has to be paid when it's earned.
 ### Founders' unpaid work
 This catches one part of the model. Founders can put in their stake partly as unpaid work, recorded as back pay the co-op owes ([Help Before the First Loan](before-launch.md#should-founders-put-in-money-of-their-own), [The Founder Problem](founder-problem.md#the-tools)). Once the co-op exists and founders are its employees, working below the minimum wage breaks the law, even by agreement. Workers can't sign away the minimum wage.
 There is an exception in federal law for an owner of at least 20% of a business who actively manages it ([29 CFR 541.101](https://www.law.cornell.edu/cfr/text/29/541.101)). The model doesn't rely on it. A locked share can't be sold, so it may not count as a real ownership stake. The exception doesn't reach teams of six or more. And it's federal only, so state wage laws may still apply. So the rule is:
 - **Before the co-op is formed, work can be unpaid.** Founders who are working on their own venture don't yet have an employer. They sign the bank's short standard founding agreement as equal partners, so it's clear nobody is working for anyone else. Their logged hours are turned into back pay when the co-op forms.
 - **Once the co-op is formed, everyone is paid at least the minimum wage for every hour,** founders included, at the state or local minimum where that's higher. Only the difference between the minimum wage and the local median pay for the job can be recorded as back pay and counted toward the stake. The first loan can pay those wages.
 - **Nobody works for free who isn't a founder.** Anyone who works on the venture after the application goes in is either a named founder or paid.
 - **The bank asks the Department of Labor for an opinion letter** on this setup before lending starts, and follows state law where it's stricter.
 That makes the stake a bit harder to earn in work, since hours after the co-op forms count for less. It's still much easier than a cash buy-in.
 ### Overtime and the profit share
 Overtime is paid at one and a half times a worker's "regular rate," and a bonus that workers are promised in advance usually has to be added into that rate ([29 CFR 778.211](https://www.law.cornell.edu/cfr/text/29/778.211)). Both the profit share and the [team bonuses](free-riding.md#team-bonuses-the-members-design) are promised in advance.
 There's a way out for the profit share. A written profit-sharing plan that pays out of the whole business's profits, by a set formula such as hours worked, isn't added into the regular rate. But the plan has to be open at least to every worker covered by the wage law, not just members, though it can require a minimum length of service ([29 CFR 549.1](https://www.law.cornell.edu/cfr/text/29/549.1)). It has other conditions too:
 - **The model's profit share probably doesn't meet it.** The part credited to members' accounts isn't paid "within a reasonable period" or put in a trust, as the rule requires. And a share "may not be diminished because of any other remuneration," but the model's pay rule takes part of above-market pay out of the profit share ([Investing for the Long Run](the-long-run.md#the-rules)).
 - **So the whole profit share is added into the overtime rate.** Every year, once the profit share is set, the standard payroll service recalculates overtime for every worker who had any and pays the difference. Overtime is a small share of hours in most co-ops, so the cost is small.
 - **Team bonuses are always added into the overtime rate.** The standard payroll service does the math.
 ### Meetings are work
 Time at a required meeting counts as working time under federal law ([29 CFR 785.27](https://www.law.cornell.edu/cfr/text/29/785.27)). So members are paid for general meetings they're expected to attend and for time on the board and committees, as [When People Don't Stay Long](high-turnover.md#unions-stay) already requires. That also keeps governance from costing low-paid members a shift.
 ## Unemployment insurance: covered in most states, not all
 Federal unemployment tax treats a corporation's officers as employees. But each state runs its own unemployment insurance, and several write owners or officers out of it ([US Department of Labor, *Comparison of State Unemployment Laws*, 2021, table 1-7](https://oui.doleta.gov/unemploy/pdf/uilawcompar/2021/coverage.pdf)). Examples:
 - **New Jersey** excludes corporate officers and anyone who owns at least 5% of the business. In a co-op with fewer than 20 members, every member owns more than 5%.
 - **Minnesota and Wisconsin** limit benefits for someone who owns 25% or more. In a co-op of three or four founders, every founder does.
 - **Washington and South Carolina** leave corporate officers out unless the corporation chooses to cover them. Members often serve as officers.
 For a member who loses their job when the co-op fails, that's the worst time to find out they're not covered.
 **Washington has partly fixed it.** Since 2024, officers of worker co-ops there no longer lose benefits for owning 10% or more of the company, and serving only as an officer doesn't count as working ([Laws of 2023, chapter 92](https://lawfilesext.leg.wa.gov/biennium/2023-24/Pdf/Bills/Session%20Laws/Senate/5176-S.SL.pdf)). The co-op still has to choose to cover its officers ([RCW 50.04.165](https://app.leg.wa.gov/RCW/default.aspx?cite=50.04.165)).
 **The model's rules:**
 - **Always cover members.** Where a state lets a co-op choose whether to cover its officers or owners, a locked co-op chooses to cover them. That's a condition of the bank's loan and part of the charter.
 - **Members are told in writing** before they join if their state leaves them out, the same notice Washington already requires for officers who aren't covered.
 - **A model state law copies Washington and goes further.** It's a separate short law a state can adopt on its own, apart from [the lock's state law](durability.md#federal-test-state-copies): members of a locked co-op are covered like any other worker, and their membership share doesn't count as ownership when they claim.
 - **Owners can't lay themselves off in turns.** The worry behind the state exclusions is real: owners can arrange their own layoffs. So under the model law, a member laid off in a rotation isn't counted as unemployed, except through the state's work-sharing program where it has one. Layoffs follow the co-op's written layoff order, and like any employer, a co-op whose members claim benefits pays a higher tax rate.
 - **Where a state still excludes members,** co-ops in that state can band together through the [federation](federation.md) for their own unemployment cover. Mondragon did this. When Spain excluded co-op members from its social security system in 1958, the co-ops built their own mutual insurer, Lagun Aro, and later added an unemployment benefit ([MONDRAGON, *History*](https://www.mondragon-corporation.com/en/history/)). In America, a shared fund like that is insurance, so it has to be licensed by the state or set up as a special trust the tax law allows for unemployment pay. It's optional.
 - **The pilot counts the gap.** It publishes how many members, by state, had no unemployment cover, and what happened to them when they lost their jobs.
 ## Workers' compensation: covered, unless someone opts out
 Injury insurance usually covers corporate officers and directors who work for pay, but many states let owners opt out. California, for example, covers officers and board members "while rendering actual service for the corporations for pay" ([Cal. Labor Code § 3351(c)](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=LAB&sectionNum=3351)). But an officer or director who owns at least 10% of the company and has health insurance can sign a waiver ([§ 3352(a)(16)](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=LAB&sectionNum=3352)). In a co-op of ten or fewer members, every member owns that much, and the board is made of members.
 **The model's rule: nobody opts out.** Every member, officer and board member who works for the co-op is covered, as a condition of the loan. Opting out saves a little on premiums and leaves an injured worker with far less.
 The same goes for state paid sick leave and paid family leave where a state lets owners or officers opt out. The charter's own leave protections ([Does Sharing the Profit Mean Less Effort?](free-riding.md#when-a-member-wont-do-the-work)) cover small co-ops that federal family leave law, which starts at 50 workers, doesn't reach.
 ## Anti-discrimination law: probably covered, and the charter covers the rest
 Federal anti-discrimination laws protect employees, not owners. In 2003 the Supreme Court said the question is control: does the person "act independently and participate in managing the organization," or are they "subject to the organization's control"? It listed six factors, including whether the organization can fire them, whether they report to someone, and whether the parties intended them to be an employee. It also said a job title or a written agreement doesn't settle it ([*Clackamas Gastroenterology Associates v. Wells*, 538 U.S. 440](https://www.law.cornell.edu/supct/html/01-1435.ZO.html)).
 A co-op member who reports to a manager and can be dismissed looks like an employee on most of those factors. **The standard membership agreement says in writing that members are employees of the co-op for every employment law.** That's one factor, not a guarantee, but it's the one the co-op controls.
 The main federal laws don't apply to employers with fewer than 15 workers (20 for age discrimination), and many co-ops will be that small. Many state laws reach smaller employers. California's, for example, starts at five ([Cal. Gov. Code § 12926(d)](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=GOV&sectionNum=12926)). Below that, the charter does the work. The dismissal process bars discrimination and retaliation for every member, whatever the co-op's size ([Does Sharing the Profit Mean Less Effort?](free-riding.md#when-a-member-wont-do-the-work)). The charter extends the same ban to every job decision: hiring onto probation, pay, schedules and harassment. None of it replaces a worker's right to go to a government agency or a court. The charter says so, and it bars any agreement that would make a worker give that up.
 ## Union rights: the biggest gap
 **The federal labor relations law (the NLRA) probably doesn't protect members' own union activity.** It protects employees, and the labor board has long excluded worker-owners who, as a group, control the company. In a 2002 case about a taxi company owned by its drivers, the board found the drivers weren't protected employees, because together they could elect and remove the board, officers and committees, repeal work rules, and change the company's constitution (*Citywide Corporate Transportation*, 338 NLRB 444). They also worked alongside employees who weren't owners, whose interests could differ. That's a close description of a locked co-op.
 The board has gone the other way when *everyone* who works there is an owner and the owners' interest as workers is "at least as great" as their interest as owners, as in a 1953 case about a plywood co-op (*Everett Plywood & Door*, 105 NLRB 17). But the model allows up to a quarter of hours to be worked by people who aren't members yet. So members of a locked co-op would most likely fall on the unprotected side. The cases are collected in [Levinson, "Union Co-ops and the Revival of Labor Law," *Cardozo Journal of Conflict Resolution* vol. 19, 2018](https://static1.squarespace.com/static/60a5863870f56068b0f097cd/t/60a5e69e188d6e641ff01621/1621485214238/Union-Co-ops-and-the-Revival-of-Labor-Law.pdf).
 **What that means in practice:**
 - **Workers who aren't members are fully protected.** People on probation, and anyone else who isn't a member, can organize, and the co-op can't punish them for it. Members wouldn't be in their bargaining unit.
 - **A co-op can still recognize a union voluntarily.** Nothing stops a co-op from signing a contract with a union that covers everyone, members included, as Cooperative Home Care Associates in the Bronx has done with 1199SEIU ([When People Don't Stay Long](high-turnover.md#unions-stay)). The difference is that if a co-op fired a member for union activity, the labor board probably couldn't step in.
 **The model's rules:**
 - **The charter protects members who organize,** and members can't vote it away. It already bars dismissing a member within 12 months of organizing unless the co-op proves the reason was something else ([Does Sharing the Profit Mean Less Effort?](free-riding.md#when-a-member-wont-do-the-work)). When a member says they were dismissed for organizing, the case goes straight to an outside arbitrator from the federation's list, paid for by the bank, not to a hearing of the same members they were organizing against. If the dismissal is overturned, the member gets their job back with back pay.
 - **Recognition sticks.** Once a co-op recognizes a union, it can withdraw recognition only if a majority of the workers the union covers, members and non-members together, vote for that.
 - **A short change in federal law, as its own bill.** It amends the NLRA's definition of "employee" to say that membership in a worker co-op, and the powers members hold together, don't by themselves take a worker outside the law. Members who actually supervise others are still excluded, like supervisors anywhere. It's kept out of the bank's law, so a fight over labor law can't sink the pilot.
 **The change needs one more piece.** The NLRA forbids an employer from dominating or funding any "employee representation committee or plan" that deals with it over pay or working conditions ([29 U.S.C. 152(5)](https://www.law.cornell.edu/uscode/text/29/152), [158(a)(2)](https://www.law.cornell.edu/uscode/text/29/158)). That rule exists to stop company unions. But once members count as employees, a co-op's member meetings and elected committees, which deal with pay and working conditions all the time, could look like exactly that. So the same bill says a worker co-op's own governance isn't a company union, and it protects members only from being punished for organizing. It doesn't force a co-op to bargain with a union of members alone.
 ## Other laws that apply
 - **Workplace safety law covers members,** including its protection against being punished for reporting a hazard. The charter's retaliation rule covers safety complaints too.
 - **Health insurance.** The federal rule requiring employers to offer health coverage starts at 50 full-time workers, so it won't reach most co-ops. Members can use the public marketplace, and the federation can arrange a group plan.
 - **The buy-in doesn't come out of pay** unless a member asks in writing. It comes out of profit shares ([When People Don't Stay Long](high-turnover.md)), which keeps co-ops clear of state laws that limit deductions from wages.
 - **Workers without work authorization can't be members,** as [How a Locked Co-op Is Taxed](taxes.md) explains. Every co-op still owes every worker the minimum wage and a safe job, and the charter bars threats about anyone's immigration status.
 ## What this doesn't solve
 - **The charter is weaker than law.** A member fired for organizing gets an outside arbitrator, not the labor board. Until the NLRA is changed, that's the protection.
 - **The NLRA change is new federal law,** and it may never pass. Opponents will say it's odd for owners to organize against themselves. The answer is that a member has one vote among many, and the managers they elect can still treat them badly.
 - **State unemployment law changes slowly.** Until states adopt the model law, members in some states have no unemployment cover unless their co-ops set up their own. Making that cover required would raise costs only for co-ops in those states. The pilot leaves it optional and counts who went without.
 - **The founding setup hasn't been tested.** Whether unpaid work before the co-op is formed is really outside wage law is a question for the Labor Department's opinion letter, and whether members' accounts stay outside pension law is another ([Member Capital Accounts](capital-accounts.md#why-not-pay-it-out-when-you-leave)). Until it answers, the bank's lawyers decide, and they could be wrong.
 - **Workers without papers are still left out** of membership, and so out of the profit share.
 - **This is a map, not legal advice.** State rules differ and change, and the Department of Labor's table is from 2021. Instead of every co-op paying a lawyer, the bank keeps a checked set of rules for each state and runs a shared payroll service that handles minimum wage, overtime and insurance.
@@ -9,28 +9,34 @@ summary: An honest list of what isn't solved yet.
 An honest list of what the model hasn't solved yet, most dangerous first.
-1. **Adverse selection on founders.** *(The most dangerous.)* The lock removes the exit, and profits are shared with every member. In the success case a co-op founder ends up with somewhere between a fifth and a twentieth of what a conventional owner of the same firm would ([The Founder Problem](founder-problem.md)). For founders without wealth the gap in what the bet is *worth* is smaller, but at the top it's decisive. If the strongest founders go conventional, the bank's portfolio is the rejected pool, and the test fails for reasons that say nothing about co-ops. The pilot publishes founders' backgrounds so this can at least be seen.
+1. **Adverse selection on founders.** *(The most dangerous.)* The lock removes the exit, and profits are shared with every member. In the success case a co-op founder ends up with somewhere between a fifth and a twentieth of what a conventional owner of the same firm would ([The Founder Problem](founder-problem.md)). For founders without wealth the gap in what the bet is *worth* is smaller, but at the top it's decisive. If the strongest founders go conventional, the bank's portfolio is the rejected pool, and the test fails for reasons that say nothing about co-ops. The pilot can at least tell how much of a result is down to founders: [Co-ops or Their Founders?](who-founds.md) measures founders on both sides from government records, and the verdict has to say how much their backgrounds explain. That doesn't change pass or fail, because if the lock keeps strong founders away, that's part of what the lock does. Still open: nothing yet makes the deal better for the founders the model most needs, and with about 400 co-ops, "too few to tell" is a likely answer.
-2. **The horizon problem.** *(Mostly answered.)* Members near retirement have little reason to vote for investments whose payoff arrives after they leave. The evidence from France and Italy finds no underinvestment where co-ops must keep a reserve, and [Investing for the Long Run](the-long-run.md) closes the main routes around this model's reserve: pay above the going rate, sales of assets, and development spending. Still open: nothing forces a co-op to maintain its equipment once its loan is repaid, reserve money could be wasted on bad expansion, and it's unsettled whether 30% is enough and whether the account rate is right. Letting members sell their places to incoming workers was rejected, because that is how the plywood co-ops ended up sold.
+2. **The horizon problem.** *(Mostly answered.)* Members near retirement have little reason to vote for investments whose payoff arrives after they leave. The evidence from France and Italy finds no underinvestment where co-ops must keep a reserve, and [Investing for the Long Run](the-long-run.md) closes the main routes around this model's reserve: pay above the going rate, sales of assets, development spending, high pay that turns into losses, and worn-out equipment still in use. A warning light shows when a co-op stops replacing its equipment, and big bets get an independent opinion before members vote. Still open: nothing forces a co-op to maintain what it has, a bad bet that fails after its backers leave falls on the people who came after, and it's unsettled whether 30% is enough and whether the account rate is right. Members' accounts now pay back within three to seven years ([Member Capital Accounts](capital-accounts.md#why-not-pay-it-out-when-you-leave)), so they help less with long-lived investments than accounts held until members leave. Letting members sell their places to incoming workers was rejected, because that is how the plywood co-ops ended up sold.
-3. **Members' savings sit inside their employer.** [Member capital accounts](capital-accounts.md) are capped at a year's pay and protected by a solvency test, but they rank behind the co-op's creditors. Fagor's 2013 bankruptcy shows what that can mean. Federation-backed insurance is an option, not yet a design.
+3. **Members' savings sit inside their employer.** *(Partly answered.)* [Member capital accounts](capital-accounts.md) are capped at a year's pay, protected by a solvency test, and now insured by a pool the co-ops pay for ([Protecting Members' Savings](savings-guarantee.md)). It covers final wages, former members' payouts and a protected slice of current accounts. Premiums are now estimated from Europe's wage guarantee funds and US closure and default rates: at least 0.25% of payroll for final wages, and probably 2% to 3% a year of covered savings, which takes nearly all the interest on a protected slice. The reserve target is sized for a five-year wave of failures like 2008–2012, and cover for current members' savings waits until the pool has its own track record. Still open: the pool has no government backing, so a worse recession could outrun it; the estimates rest on rough data, not co-ops; the reserve takes about fifteen years to build; and it needs a federal charter to avoid fifty states' insurance laws. Also open: an account paid out when a member leaves would probably be a pension plan under federal law, which would forbid the co-op from using the money. So accounts now pay each year's credit back on a fixed schedule of three to seven years, whether or not the member has left. That's designed to stay outside pension law, but it isn't settled until the Labor Department answers. It gives up the trust, disclosure and fiduciary rules that pension law would bring, which the model only partly replaces, and it leaves the co-op less of its members' money to invest for the long run.
-4. **Is the lock too rigid?** A co-op that should be sold (a better operator exists, the members want out) can only go to another co-op. If the co-op sector is small, that buyer pool is tiny, and viable firms may be liquidated instead of rescued. The federation as buyer of last resort is a partial answer. Critics on the right add a sharper version: a lock that outlasts a repaid loan by generations is a permanent restriction on selling property, bought with one loan, and it binds members who never agreed to it. Italy offers a softer model: a co-op there can convert into an ordinary company, but its accumulated reserves go to the co-op development fund, not to the members ([Has This Been Tried?](precedents.md#italys-co-op-funds-coopfond-and-the-marcora-law)). That would keep the part of the lock that stops members cashing out what earlier generations built, and drop the part that stops a firm from ever changing hands.
+4. **Is the lock too rigid?** A co-op that should be sold (a better operator exists, the members want out) can only go to another co-op. If the co-op sector is small, that buyer pool is tiny, and viable firms may be liquidated instead of rescued. The federation as buyer of last resort is a partial answer. Critics on the right add a sharper version: a lock that outlasts a repaid loan by generations is a permanent restriction on selling property, bought with one loan, and it binds members who never agreed to it. The lock is now built to hold in layers, including an independent lock share and rules against selling the business piece by piece ([The Lock](the-lock.md#how-the-lock-is-made-to-hold)). Its biggest legal gap is bankruptcy: federal bankruptcy law generally overrides limits on selling a bankrupt company's property, so the lock only holds in bankruptcy if Congress amends that law. [When a Locked Co-op Goes Bankrupt](bankruptcy.md) drafts that amendment. It's modeled on how bankruptcy law already treats charities. Only co-ops can buy a failed co-op whole, its workers can keep it running and bid with the wages they're owed, and creditors who never chose to lend are paid the lock's cost from the federation fund. It still needs Congress, a later Congress can repeal it, and while the co-op sector is small, some viable businesses will be broken up for lack of a co-op buyer. Italy offers a softer model: a co-op there can convert into an ordinary company, but its accumulated reserves go to the co-op development fund, not to the members ([Has This Been Tried?](precedents.md#italys-co-op-funds-coopfond-and-the-marcora-law)). That would keep the part of the lock that stops members cashing out what earlier generations built, and drop the part that stops a firm from ever changing hands.
-5. **Scale.** Even a total success at pilot scale leaves most workers in conventional firms. The labor-market effect needs a sector large enough to move wages, and nobody knows how long growth to that size takes, if it happens at all. That's the price of not forcing it.
+5. **Scale.** *(Partly answered.)* Even a total success at pilot scale leaves most workers in conventional firms. The labor-market effect needs a sector large enough to move wages, and nobody knows how long growth to that size takes, if it happens at all. That's the price of not forcing it. [After a Pass: How Big, How Fast](scale.md) works through the numbers: even growing at twice the recent pace every year, co-ops would take about 19 years to reach 1% of today's private jobs. Growth after a pass comes in capped stages sized to demand the reviewers certify, and the labor-market effect gets its own test, by lottery, in local markets where co-ops could become a large share of one kind of work. Still open: the closest evidence cuts both ways (big retailers paying more didn't lift other employers' pay; hospitals hiring nurses did), the local test can only find fairly large effects, and co-ops may never become a big enough share anywhere to find out.
-6. **Political durability.** See [The Constitution](constitution.md). Gradual construction invites gradual repeal.
+6. **Political durability.** *(Partly answered.)* Gradual construction invites gradual repeal. [Making It Last](durability.md) builds the bank to survive a hostile government: the lending standards and the test are fixed in law, board vacancies can't freeze lending, the verdict says "not tested" rather than "failed" if the bank turns away applicants who meet its own standards, and repeal can't unlock the co-ops. Still open: after the Supreme Court's 2026 ruling any president can replace the bank's board; money not yet lent can be taken back in a budget bill; the lock's bankruptcy protection depends on a federal law that can be repealed; and at pilot scale the sector has no real constituency.
-7. **Growth and dilution.** Softened by the tenure ramp, not eliminated. In steady state, an equal split per head still means a marginal hire must generate the average surplus to break even for incumbents. Capital-intensive expansion into lower-margin lines will face internal resistance conventional firms don't have.
+7. **Growth and dilution.** *(Partly answered.)* Softened by the tenure ramp, not eliminated, and federal tax law softens it less than the founding plan expected: by default, the part of a share new members haven't reached goes to the reserve, not to other members ([How a Locked Co-op Is Taxed](taxes.md#the-tenure-ramp)). In steady state, an equal split per head still means a marginal hire must generate the average surplus to break even for incumbents. Capital-intensive expansion into lower-margin lines will face internal resistance conventional firms don't have. [When Growing Means Sharing](growth.md) makes Mondragon's answer the standard path: a lower-margin line becomes its own locked co-op, funded from the parent's reserve as a finite, voteless investment, under rules that stop it being used to push existing workers out or move money through insider deals. Still open: growth that can't be split off still dilutes, spin-offs create richer and poorer co-ops (the groups can pool profits, but don't have to), and the evidence comes from co-ops that could hire non-members, so it probably understates the problem under the lock.
-8. **Who decides which sectors are "essential"?** Subsidy authority is price-setting power over a large chunk of the labor market, and every low-margin industry will suddenly discover it is Essential.
+8. **Who decides which sectors are "essential"?** *(Partly answered.)* Subsidy authority is price-setting power over a large chunk of the labor market, and every low-margin industry will suddenly discover it is Essential. [Who Decides What's Essential](essential-work.md) takes the choice away from people. A fixed formula decides: work qualifies only if public programs already pay for most of it and it pays badly. The money goes to workers by the hour, measured from records like Medicaid's visit logs, and states whose rates fall behind inflation lose federal Medicaid money in step. The data sources are now named: federal payment records for public money, and Census revenue, with new Census questions on a deadline and rules so status can't flip on noise. Still open: counted properly, hospitals are near the line, which would add their low-paid jobs and a great deal of cost; child care's status is undetermined until the new data exists; other work mostly paid for by families doesn't qualify; employers and owners may still capture some of the money; and it plausibly costs tens of billions of dollars a year.
-9. **The 1/N problem.** *(Mostly answered.)* Peer monitoring works at 30 people; at 10,000 your extra effort raises the pool by a rounding error. The answer is culture and structure: co-ops really do push out free riders, and the federation model keeps units small enough for monitoring to bite while pooling risk above them.
+9. **The 1/N problem.** *(Mostly answered.)* Peer monitoring works at 30 people; at 10,000 your extra effort raises the pool by a rounding error. The answer is culture and structure: co-ops really do push out free riders, and the federation model keeps units small enough for monitoring to bite while pooling risk above them. [Does Sharing the Profit Mean Less Effort?](free-riding.md) turns that into rules: small teams with their own numbers, team bonuses whose formula members set in advance, and a fair, fast dismissal process with protections against retaliation and discrimination. Still open: the evidence comes from conventional firms with profit sharing, not co-ops, and a small shared stake may even make people less willing to speak up; the pilot tracks value added per hour as co-ops grow to find out.
-10. **The pilot's own weak points.** [The pilot](pilot-spec.md) puts the burden of proof on the co-ops, which means roughly a 1-in-10 chance of shutting down a pilot that was actually working. It tests individual co-ops, not the [federation](federation.md) support network Mondragon relied on. Its [support lottery](pilot-spec.md#the-support-lottery) tests hands-on help after the loan, but not help *before* a co-op exists, which is where Mondragon started and which might matter most for getting enough good co-ops founded. And unlike Mondragon and Italy's Marcora Law, it doesn't require members to put in money of their own. That's a real trade-off: a stake from members screens out people who only want the loan, but it also shuts out workers with no savings. Its comparison group (small businesses with government-backed loans) is biased in directions that partly cancel out, by amounts nobody knows. And market-rate lending based on collateral may mostly reach founders who already have some wealth. Approval rates by race, gender and wealth are published so that shows up, but publishing a gap doesn't close it.
+10. **The pilot's own weak points.** [The pilot](pilot-spec.md) puts the burden of proof on the co-ops, which means roughly a 1-in-10 chance of shutting down a pilot that was actually working. It tests individual co-ops, not the [federation](federation.md) support network Mondragon relied on. Its lotteries test help after the loan and, since the pre-launch lottery was added, help before it ([Help Before the First Loan](before-launch.md)), but only among groups that come forward, not outreach to workers who never think of starting a co-op. Founders now put in a small stake they can pay in unpaid work, but founders who can't afford months of unpaid work still face a barrier. Its comparison group (small businesses with government-backed loans) is biased in directions that partly cancel out, by amounts nobody knows. And market-rate lending based on collateral may mostly reach founders who already have some wealth. Approval rates by race, gender and wealth are published so that shows up, but publishing a gap doesn't close it.
-11. **Federal or state?** A federal bank is the cleanest single experiment. But a few state-chartered lenders running one shared, pre-registered plan would fail smaller, fit the fact that co-op law is state law, and might be harder to repeal all at once. That trade-off hasn't been worked through.
+14. **Drift toward the safest co-ops.** *(Partly answered.)* A bank that lends only to co-ops can still lend mostly to the safe ones, like consultancies started by people with savings, as America's co-op bank did. [Who the Bank Lends To](who-gets-loans.md) sets aside $90 million of the loan money for co-ops in lower-paid work, which goes back to the general pool only if the reviewers certify the bank handled those applications fairly. Results are reported for that group and for first-time owners without much wealth, and the verdict has to say which kinds of co-ops it covers. Still open: the set-aside makes money available but can't make groups apply; it can be used mostly on work just under the average wage; first-time owners without wealth get reporting, not money; and in work whose prices are set by Medicaid or contractors, a failure may say more about the price than about co-ops.
-12. **Voluntary buyouts: in or out?** *(Open question.)* Should the bank also finance existing owners who *choose* to sell to their workers at market price, the way the UK's employee-ownership trusts work? It would grow the sector faster without forcing anyone. But it would mix two different experiments, and conversions carry different risks than startups.
+15. **Taxes.** *(Partly answered.)* A locked co-op is a corporation that pays tax once on members' profit shares, under the part of the tax code written for co-ops. [How a Locked Co-op Is Taxed](taxes.md) fits the model to it: profit is shared per hour worked, workers who aren't members get a share too, wages reach the going rate before any profit is shared, and charges come out of the current year's share before older, already-taxed balances. Still open: nobody has ruled that a co-op with an outside lock-holder and a reserve that goes to the federation counts as a co-op for tax purposes; whether profit shares owe payroll tax is unsettled; the ramp no longer shields senior members from new hires unless it's paid as wages; workers without work authorization can't be members; and the kept reserve pays 21% even though nobody owns it.
 11. **Federal or state?** *(Mostly answered.)* The test stays federal, because one bank with one plan makes one clean experiment. Any state can copy the bank under the same published rules, reported separately, and a model state law protects the lock ([Making It Last](durability.md#federal-test-state-copies)). Still open: whether a few state lenders sharing one plan would have been the stronger experiment after all, since the most durable public bank in America, North Dakota's, is a state bank.
 12. **Voluntary buyouts: in or out?** *(Answered.)* In, on a separate track: $100 million of its own, healthy firms only, a willing seller, no new tax break, a capped price the seller shares the risk on, a vote of the whole workforce, and its own test of money and pay, so it can't flatter the startup result ([When an Owner Wants to Sell to the Workers](buyouts.md)). Still open: whether a price set by the market is fair to workers who pay it out of their own future work, and whether about 60 deals can show more than that the loans get repaid.
 13. **Work where people don't stay long.** *(Partly answered.)* In home care, most workers leave within a year or two. Membership is now automatic after a short probation, the buy-in comes out of profit shares rather than pay, and pushing people out before they'd join counts against the co-op ([When People Don't Stay Long](high-turnover.md)). Still open: with a five-to-ten-year profit share ramp, only a small minority of care workers ever reach a full share, so the people who stay collect much of the profit the others helped make. A much shorter ramp for low-margin, high-turnover co-ops would fix that, but it would go against the founding plan's range and weaken the ramp's protection against under-hiring. Also open: whether default members take part in governance, and the legal questions around tax IDs, visas and benefit asset limits. How labor law treats worker-owners now has its own page ([Owners Are Still Workers](labor-law.md)). Federal labor law probably doesn't protect members' own organizing, so the charter does, and fixing the law takes a separate bill that may never pass. Some states leave members out of unemployment insurance, and whether founders' unpaid work before the co-op forms is outside wage law still needs the Labor Department's answer.
 *Not problems here, because nobody's company is forcibly bought:* valuing every firm in the economy, owners stripping value before a takeover, foreign capital flight, and years of payouts to former owners. The contractor boundary isn't an economy-wide problem either. Its co-op version, hiring non-members to dodge membership, is handled by [the lock](the-lock.md)'s membership requirement.
@@ -0,0 +1,94 @@
 ---
 title: Who Sets the Pay
 section: The Co-op
 order: 22
 summary: Salaries in a co-op are set by its members, so the model guards against two opposite failures, a majority paying itself a bigger slice and pay squeezed so flat that higher-paid people leave, with open pay bands, a pay ratio each co-op chooses, and a second vote that protects the lower-paid.
 ---
 # Who Sets the Pay
 In this model, base salaries still exist, and the co-op sets them. Hard jobs and in-demand jobs pay more ([Worker Ownership](worker-ownership.md)). There's no legal cap on pay.
 That makes pay the one big lever the profit split doesn't control. Profit is divided by fixed rules: 30% to the reserve, then shares by hours worked, times each member's share weight, which grows with tenure until it's full ([Member Capital Accounts](capital-accounts.md)). Salaries are whatever the members decide. So a co-op's pay decisions can quietly undo the rest of the design, in two opposite ways.
 ## Two ways pay goes wrong
 **Too much at the top.** A group of members who together make up a majority, say managers and skilled staff, can vote themselves higher pay. That money comes out of profit that would otherwise have been shared among all members. The model already takes part of it back. The reserve gets 30% of any pay above the going rate for the job, meaning the typical local pay for that kind of work ([Investing for the Long Run](the-long-run.md#the-rules)). But the other 70% still goes to whoever voted for it.
 **Too flat, so higher-paid people leave.** Gabriel Burdín followed a random sample of Uruguayan workers through social security records from 1997 to 2010 ([Burdín, *Economic Journal*, 2016](https://gwern.net/doc/economics/2016-burdin.pdf)). He found:
 - **Worker-run firms paid more at the bottom and less at the top.** Among the lower-paid (the 20th percentile), working in a co-op was linked with about 18% higher pay than in a conventional firm. Among the higher-paid (the 80th percentile), about 4% lower. That's a comparison across people, not proof that the co-op caused the difference.
 - **Their higher-paid members quit more.** Members paid above their own co-op's median were 3.7 times as likely to quit as those paid below it.
 - **Less squeezing meant fewer quits.** The effect was stronger in co-ops that squeezed pay more, and weaker among founding members.
 That's one study, in one country. It measured only one of the two failures, since insiders quietly overpaying themselves is much harder to see in the data. So it doesn't show which failure is bigger. But it does show that the second one is real.
 **Mondragon keeps a hard cap.** It started with top pay at three times the lowest, raised that to four and a half in the 1970s when it set up its own welfare system, and to six in 1988 in response to tax reforms. The head of its outreach program describes the cap as a balance between avoiding a brain drain and keeping a sense of fairness ([Co-operative News, 2025](https://www.thenews.coop/co-operative-approaches-to-pay/)).
 ## The rules
 The model doesn't set anyone's pay. It makes sure pay is decided in the open, in the right order, and that the lower-paid can't simply be outvoted.
 ### Pay bands, not personal votes
 - **Every job has a pay band**, a range from lowest to highest. Members approve the bands, as part of the pay policy.
 - **Managers place people within the bands**, and can give raises and bonuses there, the way any employer does. Nobody's personal salary goes to a vote of the whole co-op.
 - **Offers can run for up to three years.** A salary agreed within an approved band holds for the length of the offer, even if the band changes later. So a co-op can hire someone with a firm offer.
 ### Everyone sees the bands
 - **Every worker, member or not, sees every band** next to the going rate for that job. Where a job has fewer than three people in it, only the band is shown, not what each person earns. Managers' actual pay is always shown.
 - **Job ads list the pay band.** Several states already require this.
 - **Workers can always talk about their pay.** Federal labor law already protects that for most workers, and a co-op can't ask anyone to keep their pay secret.
 - **The public sees the totals.** Each year the co-op publishes its pay ratio, how much of its total pay was above the going rate, and pay by job, gender and race in summary form.
 ### Each co-op chooses its ratio
 - **The bylaws must set a highest-to-lowest pay ratio.** There's no ready-made number. The founders have to pick one, and the founding documents show Mondragon's six to one for reference.
 - **The ratio counts everything and everyone.** It's measured on total pay per full-time hour, including bonuses and benefits valued at cost. It includes people working through agencies, contractors and related companies. Moving the cleaning to an agency doesn't raise the bottom of the scale on paper.
 ### Two majorities, not one
 A majority vote can't protect a minority from the majority. So some pay decisions need **two majorities**: a majority of all members, and a majority of the members in the lower-paid half. They are:
 - changing the pay ratio;
 - any band whose top is above the 90th percentile of local pay for that job, or above three times the co-op's own median pay;
 - any change that raises bands for jobs held by more than half the members.
 These votes are by secret ballot, with at least 30 days' notice. That makes both kinds of grab harder: a skilled majority can't vote itself a raise over the heads of the lower-paid, and a scarce specialist can still be paid what it takes, if both groups agree.
 ### Nobody votes alone on their own pay
 - **The board approves managers' bands and the chief executive's pay.** Managers who sit on the board step out of those votes.
 - **No two people can set each other's pay.**
 - **Board pay, if any, is set by the members.**
 - **Founders' pay** follows the existing rule: the founding bylaws can set it for at most five years, then the members take over ([The Founder Problem](founder-problem.md#the-tools)).
 - **Pay is added up per person.** Pay from more than one role at the co-op, fees paid to a company the person owns, and pay from a related company all count together.
 ### Unions fit in
 A union can bargain for any group of workers, members or not. For a minority that thinks it's being underpaid, collective bargaining is the standard protection, and it works inside a co-op too ([When People Don't Stay Long](high-turnover.md#unions-stay)).
 ## Why not a fixed cap
 A legal cap on the ratio, like Mondragon's six to one, would be simpler. The model doesn't impose one, for two reasons:
 - **Different businesses need different ratios.** A cleaning co-op and an engineering co-op don't hire in the same job market, and a cap that suits one would strangle the other.
 - **Pay squeezed too flat has a real cost.** The large study above found higher-paid members leaving co-ops that squeezed pay hardest. A national cap would make every co-op take that risk.
 What the rules do instead is make every co-op choose a ratio, in the open, and make high pay something the lower-paid have to agree to.
 ## What the pilot measures
 The [pilot](pilot-spec.md#what-gets-measured) publishes, alongside the gap between top and bottom pay:
 - **the share of pay above the going rate**, so any drift toward insiders paying themselves shows;
 - **how often higher-paid members leave**, compared with the matched conventional firms, so a brain drain shows too;
 - **pay gaps by gender and race within the same job.**
 ## What this doesn't solve
 - **The going rate is a rough measure.** A government wage survey can't tell a strong engineer from an average one, and it carries the same pay gaps as the rest of the economy. It's a yardstick for when to ask questions, not a measure of what work is worth.
 - **Two majorities are harder to reach.** Some fair raises will stall. That's the price of making sure the lower-paid can't be outvoted on pay.
 - **Open bands still reveal a lot in a small co-op.** Some people will find that uncomfortable, and some good hires may not want it.
 - **Nothing here makes a co-op pay its higher-paid people enough.** The rules make it easy to see when it doesn't. Whether members vote to pay what it takes to keep them is exactly what the pilot will show.
@@ -20,7 +20,7 @@ This page lists the ways someone could cheat [the pilot](pilot-spec.md), or sabo
 - **Every deal with an insider is disclosed.** Any contract with a founder, manager, member's family, or a company they own is reported to the bank and checked each year to confirm it's priced like a deal between strangers. Overpayments are treated as a breach of the loan.
 - **Members can fire management.** Any management or franchise contract can be ended by a members' vote on short notice. A contract the members can't get out of is a boss.
 - **The business owns what it needs to operate, or can buy it.** If key assets are leased from an insider, the bank gets a claim on them or the co-op gets an option to buy them at a fair price. That way the co-op can't be held hostage, and the bank's collateral is real.
- **Membership is real.** Probation lasts at most 12 months. At least three-quarters of the work hours must be done by members. Both are checked every year. A co-op that falls short counts as failed in the [pilot's survival measure](pilot-spec.md#what-gets-measured).
+- **Membership is real.** Probation lasts at most 12 months, counted across rehiring, and membership is automatic when it ends unless the worker opts out through the lock-holder. Members must do at least half the work hours in the co-op's second year and three-quarters from its third, counting hours worked through agencies or contractors. Pushing people out before they'd join is tracked and counts against the co-op ([When People Don't Stay Long](high-turnover.md)). All of this is checked every year. A co-op that falls short counts as failed in the [pilot's survival measure](pilot-spec.md#what-gets-measured).
 - **Lying costs something.** False statements on a loan application mean immediate repayment, and the people who made them are personally liable.
 ## Draining it through "investors"
@@ -51,7 +51,7 @@ This page lists the ways someone could cheat [the pilot](pilot-spec.md), or sabo
 - **Founders' loans and back pay rank behind the bank.** They can't be repaid from the bank's loan money, or while any payment to the bank is late.
 - **Back pay is valued at no more than the co-op's own pay for that job** once it has revenue. Founder loans earn at most the Treasury rate plus three points.
- **Salaries can't be used to skip the profit split.** Founders can set their own pay in the founding bylaws for at most five years. After that, the members set all salaries. Pay for every role is disclosed to the bank each year, and the gap between the highest and lowest pay is published.
+- **Salaries can't be used to skip the profit split.** Founders can set their own pay in the founding bylaws for at most five years. After that, the members set all salaries. Pay for every role is disclosed to the bank each year, and the gap between the highest and lowest pay is published. Pay bands are open to every worker, nobody votes alone on their own pay, and high pay needs the agreement of the lower-paid half of the members as well as a majority of all of them ([Who Sets the Pay](pay.md)).
 - **Payouts from members' accounts pass a solvency test**, so insiders who see trouble coming can't cash out first (see [Member Capital Accounts](capital-accounts.md#protecting-the-co-op-and-the-people-who-stay)).
 ## Relabeling an old business as "new"
@@ -104,4 +104,4 @@ This page lists the ways someone could cheat [the pilot](pilot-spec.md), or sabo
 - **Every loan is public:** the borrower, the amount, the rate and the terms.
 - **Every contact from an elected official or their staff about a specific loan is logged and published.**
- **The board answers to elected officials. Individual loans don't.** Officials can appoint and remove the bank's board. But no official can direct a decision on a particular loan, and loan officers are bankers, not appointees.
+- **The board answers to elected officials. Individual loans don't.** The President can appoint and remove the bank's board at will. But by law no official can direct a decision on a particular loan, loan officers are bankers, not appointees, and a new board can't change the filed lending standards without the results being reported both ways (see [Making It Last](durability.md#what-a-new-board-cant-change)).
@@ -15,7 +15,7 @@ The rules that stop people from gaming the pilot (sham co-ops, hidden owners, ri
 | | |
 | --- | --- |
-| **Money** | $350 million, once. |
+| **Money** | $350 million, once, plus a separate $100 million for [worker buyouts](buyouts.md). |
 | **Lending window** | Years 1–5 (up to year 8 if good applicants are scarce). |
 | **Target** | About 400 new worker co-ops. |
 | **Loan size** | Up to $3 million per co-op, including all later loans. |
@@ -47,12 +47,12 @@ Private co-op lenders exist and do good work, but they're small. Shared Capital
 ## How much money, and why
-**$350 million, one time.** In the pilot, the bank lends only its own capital. It doesn't borrow on top of it. That makes the worst case easy to state: taxpayers can lose at most $350 million, minus whatever is repaid.
+**$350 million, one time.** In the pilot, the bank lends only its own capital. It doesn't borrow on top of it. That makes the worst case easy to state: taxpayers can lose at most $350 million, minus whatever is repaid. A separate $100 million for owners who choose to sell to their workers has its own rules and its own test ([When an Owner Wants to Sell to the Workers](buyouts.md)), which makes the total worst case $450 million.
 It breaks down like this:
- **About $300 million for loans.** Around 400 co-ops with a typical first loan of about $500,000 is roughly $200 million. The rest is for follow-on loans to co-ops that grow. For comparison, Shared Capital's average loan is about $230,000. The pilot's loans are larger because it's meant to fund real businesses with real payrolls, not only very small ones.
+- **About $290 million for loans.** Around 400 co-ops with a typical first loan of about $500,000 is roughly $200 million. The rest is for follow-on loans to co-ops that grow. For comparison, Shared Capital's average loan is about $230,000. The pilot's loans are larger because it's meant to fund real businesses with real payrolls, not only very small ones.
- **$20 million, capped, for business help:** bookkeeping, governance training, legal setup, and more intensive help for half the co-ops, chosen by lottery (see [the support lottery](#the-support-lottery)). Venezuela's census blamed many of its failures on the lack of exactly this. This money is a public cost, stated openly and capped, and it's counted in the pilot's total cost to taxpayers. It isn't allowed to hide inside loan pricing.
+- **$30 million, capped, for business help:** $20 million after the first loan (bookkeeping, governance training, legal setup, and more intensive help for half the co-ops, chosen by lottery; see [the support lottery](#the-support-lottery)), and $10 million before it, taken from the loan budget, for a lottery testing whether serious help makes more groups succeed in starting a co-op that lasts ([Help Before the First Loan](before-launch.md)). Venezuela's census blamed many of its failures on the lack of exactly this. This money is a public cost, stated openly and capped, and it's counted in the pilot's total cost to taxpayers. It isn't allowed to hide inside loan pricing.
 - **The remainder** is a cash cushion and running costs.
 ## Why about 400 co-ops
@@ -65,11 +65,11 @@ To be confident that co-ops do "at least about as well" as conventional firms, y
 That also means a roughly 10% chance of shutting down a pilot that was actually working. That's the cost of putting the burden of proof on the co-ops, and it's stated openly.
-**The honest problem with 400.** The whole US worker co-op sector was about 751 firms in 2023, roughly triple what it was a decade earlier ([NCEO summary of the Democracy at Work Institute census](https://www.nceo.org/employee-ownership-blog/democracy-at-work-institute-releases-its-2023-worker-cooperative-state-of-the-sector-report)). That's about 50 new co-ops a year. Reaching 400 in five years means roughly doubling the rate at which co-ops get founded.
+**The honest problem with 400.** The whole US worker co-op sector was about 751 firms in 2023, roughly triple what it was a decade earlier ([NCEO summary of the Democracy at Work Institute census](https://www.nceo.org/employee-ownership-blog/democracy-at-work-institute-releases-its-2023-worker-cooperative-state-of-the-sector-report)). That's net growth of about 50 co-ops a year, after counting the ones that closed. Reaching 400 in five years means about 80 a year, roughly 1.6 times that pace, on top of whatever else the sector adds.
 That creates exactly the pressure that sank Venezuela: an institution with a target lowers its standards to hit it. So:
- **No lending targets.** Nobody is paid, promoted or judged on loan volume.
+- **No lending targets.** Nobody is paid, promoted or judged on loan volume. Part of the loan money is set aside for co-ops in lower-paid work, but that's money made available, not a target ([Who the Bank Lends To](who-gets-loans.md)).
 - **If good applications fall short, the lending window stretches** (up to year 8) instead of standards dropping. The final review moves back by the same amount. That rule is fixed now.
 - **A shortfall is itself a result.** If good co-op applicants don't show up even when financing is available, that's evidence for the "co-ops are rare because they're hard, not because they're unfunded" explanation, and it gets reported that way.
@@ -77,9 +77,10 @@ That creates exactly the pressure that sank Venezuela: an institution with a tar
 - **New worker co-ops only, for the main test.** "New" means the *business* is new, not just the legal paperwork. A conventional firm that reincorporates as a co-op isn't new (see [Guarding the Pilot](pilot-safeguards.md)).
 - **Existing co-ops may borrow too, but they're scored separately.** Firms that have already survived for years would make the results look better than they are.
- **No rescues of failed conventional firms.** That's where FONDES lost its money, and it's a different experiment (see *Voluntary buyouts* in [Open Problems](open-problems.md)).
+- **No rescues of failed conventional firms.** That's where FONDES lost its money.
 - **Healthy firms whose owners choose to sell to their workers** can borrow on a separate track, with its own money and its own test, so they can't flatter the main result ([When an Owner Wants to Sell to the Workers](buyouts.md)).
 - **At least three worker-members at the first loan**, meeting the [co-op definition](worker-ownership.md) and accepting [the lock](the-lock.md).
- **Members are on the payroll as employees.** That gives them minimum wage, unemployment insurance and workers' compensation like any other worker. It also means the co-op shows up in the government business records the test relies on.
+- **Members are on the payroll as employees.** That gives them minimum wage and workers' compensation like any other worker, and unemployment insurance in most states ([Owners Are Still Workers](labor-law.md)). It also means the co-op shows up in the government business records the test relies on.
 - **Any legal industry.** Loan officers judge business plans, not industries. But no single industry may take more than 25% of the money lent, and no single county more than 10%, so one bad sector or one local market can't sink the whole test.
 ## Loan terms
@@ -107,18 +108,18 @@ All of this is written down and filed in a public study registry before the firs
 1. **Fair survival.** Does the co-op stay open and keep treating its members fairly? A co-op counts as *failed* if any of these happens:
   - it closes, or falls below three members or a minimum level of sales;
   - for two years running, its members' median pay per hour (wages plus profit share) falls below 85% of the matched conventional firms' median;
-   - it stops being a real co-op: fewer than three-quarters of its work hours are done by members, or its workers are kept on probation past the limit.
+   - it stops being a real co-op: from its third year, fewer than three-quarters of its work hours are done by members, or its workers are kept on probation past the limit, or it pushes people out before they'd become members ([When People Don't Stay Long](high-turnover.md)).
   The pay rule matters. Co-ops can survive a bad stretch by cutting their own pay instead of cutting jobs, and the best existing study couldn't rule that out. A co-op that survives by paying its people far less than the business down the street hasn't passed.
 2. **The bank's money.** At the end, after every loss, write-off and running cost, and every dollar spent on business help, has the loan book earned at least what the same money would have earned in Treasury bonds over the same years? Anything less means taxpayers lost money compared with just holding bonds. Loans still outstanding are valued at what a buyer would pay for them. Loans that were restructured to avoid default are marked down, so going easy on struggling borrowers can't hide losses.
 A useful yardstick: among the SBA's mature loan groups from 1992 to 2004, loans making up about 6% to 10% of the money lent eventually defaulted, and about 37% of the defaulted amount was later recovered ([GAO-20-618](https://www.gao.gov/products/gao-20-618)). A lender charging market rates with losses in that range covers them from interest.
-**Measures that are published but don't decide:** jobs created, wages at the bottom and top and the gap between them, revenue per worker (a rough measure of productivity), how long members stay, injury rates, and the bank's default and recovery rates. Also:
+**Measures that are published but don't decide:** jobs created (with growth compared with matched firms, spin-offs, and expansions members voted down; see [When Growing Means Sharing](growth.md#5-measuring-it)), wages at the bottom and top and the gap between them, the share of pay above the going rate, how often higher-paid members leave, pay gaps by gender and race within the same job ([Who Sets the Pay](pay.md)), revenue per worker (a rough measure of productivity) and value added per hour worked, followed as co-ops grow ([Does Sharing the Profit Mean Less Effort?](free-riding.md#measuring-it)), how long members stay, injury rates, and the bank's default and recovery rates. Also:
- **Who got loans.** Approval rates and loan terms by the founders' race, gender and personal wealth. If collateral-based lending quietly shuts out the people co-ops mostly serve, it should show.
+- **Who got loans.** Approval rates and loan terms by the founders' race, gender and personal wealth. If collateral-based lending quietly shuts out the people co-ops mostly serve, it should show. Results are also reported for co-ops in lower-paid work and for first-time owners without much wealth ([Who the Bank Lends To](who-gets-loans.md)).
 - **Who gets the profits inside each co-op.** Profit shares, founding shares and membership approvals by race and gender, so that an in-group of early members can't quietly take most of the pool.
- **Who founded them.** Founders' previous earnings and work histories, using linked government records where they're available, compared with the founders of the matched firms. If the strongest founders stay away ([The Founder Problem](founder-problem.md)), this is where it shows.
+- **Who founded them.** Founders' previous earnings and work histories, using linked government records where they're available, compared with the founders of the matched firms. If the strongest founders stay away ([The Founder Problem](founder-problem.md)), this is where it shows. How it's measured, and how the verdict has to say how much founders explain, is in [Co-ops or Their Founders?](who-founds.md)
 - **Investment.** Spending on equipment, buildings and development per worker, how much of each year's profit is kept in the business, and the return those investments earn, compared with the matched firms. If co-ops starve themselves of capital, as economists have long predicted ([Investing for the Long Run](the-long-run.md)), this is where it shows.
 - **Local effects.** Business openings and closures in the counties where co-ops were funded, so any damage to existing local businesses is visible.
 - **Results by industry**, including care work like home health and cleaning, where most US co-op members work today.
@@ -167,7 +168,7 @@ Mondragon's bank gave its co-ops far more than loans. It gave them a salaried ma
 **What it can and can't show.** Assume about 200 co-ops in each group and closures in line with new businesses generally. Then the pilot can reliably detect only a large effect, something like 30 to 40% fewer closures in the intensive group. So its main outcome is survival and fair pay at year four, when the help's effect should be clearest, with year twelve reported as well. The result is reported as a range, with a cost per closure avoided, and it counts as exploratory. **A result that isn't statistically significant doesn't prove the help is useless.** It means only that a large effect has been ruled out.
-**What it doesn't test.** Mondragon's help started *before* a co-op existed: studying the idea, paying the manager, covering early losses. This lottery starts after the loan, so it can't say whether help before launch creates more good co-ops. That's logged as an open question.
+**What it doesn't test.** Mondragon's help started *before* a co-op existed: studying the idea, paying the manager, lending to cover early losses. This lottery starts after the loan, so a second lottery, among groups that want to start a co-op, tests help before launch ([Help Before the First Loan](before-launch.md)).
 **If intensive help works,** that's an argument for building it into [the federation](federation.md), paid for by the co-ops out of their shared fund the way Italy's Coopfond is, not for a permanent federal advisory office.
@@ -195,7 +196,7 @@ At year 12, both measures must pass:
 **There is no "inconclusive, keep going" option.** If the evidence doesn't clearly show co-ops holding their own, that counts as a fail. The burden of proof is on the co-ops, which is where a skeptic would put it.
-**The emergency stop.** If net losses ever pass 20% of the capital ($70 million), new lending freezes, and the reviewers report within six months on the cause:
+**The emergency stop.** If net losses ever pass 20% of the capital ($70 million), new lending freezes (the [buyout track](buyouts.md) has its own stop, at $20 million), and the reviewers report within six months on the cause:
 - **A recession:** lending restarts only if the SBA's own loans from the same years lost money at a similar rate. That's a fixed comparison, not a judgment call.
 - **Fraud:** lending restarts once the reviewers certify the specific gaps are closed and recovery has been pursued. Otherwise one organized fraud ring could end the experiment on purpose (see [Guarding the Pilot](pilot-safeguards.md)).
@@ -203,7 +204,7 @@ At year 12, both measures must pass:
 ## What this pilot can't tell you
- **Whether the labor market changes.** 400 co-ops won't move anyone's wages. See [The Test](the-test.md).
+- **Whether the labor market changes.** 400 co-ops won't move anyone's wages. How big the sector would need to get, how long that could take, and how the effect could be tested locally after a pass are in [After a Pass: How Big, How Fast](scale.md).
- **Whether the best founders come.** The test measures the co-ops that *did* apply. If strong founders stay away ([The Founder Problem](founder-problem.md)), a pass means "the co-ops that exist can compete," not "co-ops would win with everyone's best people."
+- **Whether the best founders come.** The test measures the co-ops that *did* apply. If strong founders stay away ([The Founder Problem](founder-problem.md)), a pass means "the co-ops that exist can compete," not "co-ops would win with everyone's best people." The pilot can measure how much founders' backgrounds explain the result, but it can't see the founders who never applied ([Co-ops or Their Founders?](who-founds.md)).
 - **Whether co-ops do better with a full support network.** The pilot funds individual co-ops. It doesn't build [the federation](federation.md) that Mondragon relied on, so co-ops that join a federation are reported separately. The [support lottery](#the-support-lottery) tests one piece of that network, hands-on help, but not the rest: shared funds, moving workers between co-ops, joint buying and selling.
- **Whether it survives politics.** Congress can refuse the second capitalization, or repeal the whole thing. See [The Constitution](constitution.md).
+- **Whether it survives politics.** Congress can refuse the second capitalization, or repeal the whole thing. A hostile board could also try to rig the result, which is why the verdict can be "not tested" rather than "failed" if the bank turned away applicants who met its own standards. See [Making It Last](durability.md).
@@ -30,7 +30,7 @@ This page goes through what each one actually did, with the failures left in, an
 - **Survival often meant rescue.** In Spain's recession of the late 1970s and early 1980s, the bank's business division switched from starting co-ops to saving them. In 1983 alone, 34 of about 100 co-ops needed its intervention department. The bank replaced managers, changed product lines, merged co-ops, and moved workers between them, and it wrote off about $160 million in loans (Morris, 1992). Many of the co-ops that "survived" did so because the bank restructured them. That's a real achievement, but it isn't the same as surviving on their own.
 - **The market was protected.** Mondragon's biggest industry was household appliances. In 1980 Spain protected them from imports with a 35% tariff, and that protection only fell away (to 5% in 1991) as Spain joined the European market (Morris, 1992).
 - **Then the bank moved on.** Once a change in Basque co-op law allowed it, in the early 1980s, the bank started offering mortgages and car loans to the public, and its deposits grew far beyond what the co-ops needed. By the early 1990s only about 15% of its loans went to co-ops. In 1991 the Entrepreneurial Division was spun off into a separate consulting co-op, LKS (Morris, 1992).
- **And the flagship later failed.** Fagor, the appliance maker at the heart of the group, expanded across Europe and China largely on borrowed money, lost its main market in Spain's housing crash, and went bankrupt in 2013 with €1.1 billion of debt ([Wikipedia](https://en.wikipedia.org/wiki/Fagor)). Full group support didn't save it.
+- **And the flagship later failed.** Fagor, the appliance maker at the heart of the group, expanded across Europe and China largely on borrowed money, lost its main market in Spain's housing crash, and went bankrupt in 2013 with about €800 million (about $1.1 billion) of debt ([The Local, 2013](https://www.thelocal.es/20131114/major-manufacturer-fagor-files-for-bankruptcy)). Full group support didn't save it.
 **What the pilot takes from it:**
@@ -65,14 +65,14 @@ Two cautions. Those are euros as collected, not adjusted for thirty years of inf
 The survival record is good. Of the 82 buyouts started between 2003 and 2014, 71 (87%) were still operating at the end of 2014 (Vieta, 2015). That's a young group, though, and buyouts are chosen with care: workers only try one when they're confident the business can work.
-These are rescues of existing businesses, which [the pilot](pilot-spec.md#who-can-borrow) keeps out of its main test because of Uruguay's experience. The difference is in how they're chosen. Marcora buyouts need the workers' own money and a specialist's study of whether the business can work. Uruguay's went mostly to politically connected firms that had already failed.
+These are rescues of existing businesses, which [the pilot](pilot-spec.md#who-can-borrow) keeps out entirely because of Uruguay's experience. It does lend for sales of *healthy* firms whose owners choose to sell to their workers, on a separate track ([When an Owner Wants to Sell to the Workers](buyouts.md)). The difference is in how they're chosen. Marcora buyouts need the workers' own money and a specialist's study of whether the business can work. Uruguay's went mostly to politically connected firms that had already failed.
 **The warning in the Marcora story.** The original law let the state put in up to three euros for every euro the workers invested. After Italy's main employers' association intervened, the European Union ruled that this broke its competition rules by giving worker buyouts an unfair advantage, and the program was suspended. A 2001 reform cut the state's share to one euro per worker euro, to be repaid over 7 to 10 years. From 2000 to 2006, while the rules were being rewritten, CFI made no new investments, and only a handful of buyouts happened at all (Vieta, 2015).
 **What the pilot takes from it:**
 1. **A movement fund can last.** Coopfond shows that a small cut of co-op profits, lent and invested carefully, can keep its value for decades. The federation fund is modeled on it.
-2. **Workers' own money in, alongside the public's.** Both Mondragon (20% from founders) and Marcora (one to one) required workers to put money in. The pilot doesn't require it yet. That's logged as an open question, because a buy-in also shuts out workers with no savings.
+2. **Workers' own money in, alongside the public's.** Both Mondragon (20% from founders) and Marcora (one to one) required workers to put money in. The pilot now asks founders for a small stake, at least 5% of the first loan, which they can pay in unpaid work instead of cash, because a cash buy-in shuts out workers with no savings ([Help Before the First Loan](before-launch.md)).
 3. **Subsidies get challenged.** Marcora's generous matching was the part that got struck down, and the program lost six years. The US has no European-style rule against state aid, but the political version of the same attack ("unfair competition with taxpayer money") works anywhere. A bank that lends at market rates is much harder to attack that way. That's one more reason the pilot's bank doesn't subsidize its loans, and why the help it does give is costed openly.
 4. **Italy locks the reserves, not the firm.** An Italian co-op *can* turn itself into an ordinary company, but its accumulated reserves go to the co-op development fund, not to the members. That's a softer version of [the lock](the-lock.md), and it's weighed in [Open Problems](open-problems.md).
@@ -0,0 +1,144 @@
 ---
 title: Protecting Members' Savings
 section: The Co-op
 order: 26
 summary: If a co-op fails, its workers shouldn't lose their last paychecks and their savings along with their jobs. How an insurance pool paid for by the co-ops protects them, and what it can't promise.
 ---
 # Protecting Members' Savings
 Every member of a co-op builds up savings in a [capital account](capital-accounts.md). That money is real, but it sits inside the same business that pays the member's wages. If the co-op fails, its lenders get paid first, and members' accounts are paid only from whatever is left. A worker can lose their job and their savings on the same day. Their last few paychecks may go unpaid too.
 The model already limits how much can pile up (accounts are capped at a year's pay) and stops insiders cashing out first (every payout has to pass a solvency test). This page adds the missing piece: insurance.
 ## What goes wrong in real life
 - **Fagor, 2013.** When Mondragon's appliance maker went bankrupt, more than 900 former workers of Fagor and a related co-op sued Mondragon for €47.8 million of capital contributions they had lost. The courts turned them down, ruling in 2018 that the claim had been filed too late ([Europa Press, via Infobae, 2023](https://www.infobae.com/espana/agencias/2023/11/12/diez-anos-de-la-caida-de-fagor-electrodomesticos-cronologia-de-una-quiebra/)). Some savers had also bought Fagor's subordinated bonds believing they were ordinary deposits ([elDiario.es, 2023](https://www.eldiario.es/euskadi/diez-anos-quiebra-fagor-electrodomesticos-tambaleo-esencia-cooperativismo-vasco_1_10612926.html)). Mondragon did protect most of the *jobs*. Of 1,736 members in the Basque plants, 577 became members of other co-ops, 320 were moved temporarily, and many more retired early or were compensated, paid for partly by doubling contributions to Mondragon's own social insurance fund (elDiario.es). It had no equivalent protection for their savings.
 - **Italy's consumer co-ops, 2014–15.** Italian consumer co-ops let their members keep savings with them, as a "social loan" to the co-op. When two co-ops in Italy's northeast failed, thousands of members' savings were frozen. At one of them, Coop Operaie di Trieste, 17,662 members held social-loan savings, and a rush of withdrawals set off the collapse ([Wikipedia, in Italian](https://it.wikipedia.org/wiki/Cooperative_Operaie_di_Trieste_Istria_e_Friuli)). At the other, CoopCa, about 3,000 members had around €27 million at stake. Under the rescue plan they could expect three-quarters back at best, and not before 2018. Neighboring co-ops voluntarily paid them up to half of their money, €13 million in all ([Il Fatto Quotidiano, 2015](https://www.ilfattoquotidiano.it/2015/08/05/crac-coopca-la-guerra-dei-soci-che-spaventa-le-altre-cooperative-del-nordest/1919384/)).
 - **Enron, 2001.** Not a co-op, but the same trap: about 63% of the money in its workers' 401(k) retirement plan was in Enron's own stock when it collapsed ([GAO-02-480T](https://www.gao.gov/assets/gao-02-480t.pdf)).
 Three lessons come out of these. When members sense trouble, they rush to get their money out, and the rush itself can sink the firm. Savings get sold as safer than they are. And help after the fact is voluntary, partial and slow.
 ## How similar protection works elsewhere
 - **Credit unions.** America's credit unions are member-owned, like co-ops, and they insure their members' savings through a fund they pay for themselves. Each credit union keeps a deposit worth 1% of its insured savings with the fund, and the fund aims to hold reserves of 1.2% to 1.5% of insured savings ([12 U.S.C. § 1782](https://www.law.cornell.edu/uscode/text/12/1782)). Unlike this model, that fund is backed by the full faith and credit of the United States ([NCUA](https://www.ncua.gov/support-services/share-insurance-fund)).
 - **Bank deposits.** Deposit insurance is paid for by the banks, through premiums that by law must rise with each bank's risk. The fund's legal minimum reserve is 1.35% of insured deposits, and its long-term goal is 2% ([FDIC](https://www.fdic.gov/resources/deposit-insurance/deposit-insurance-fund/); [12 U.S.C. § 1817](https://www.law.cornell.edu/uscode/text/12/1817)). It too has government backing.
 - **Unpaid wages in Europe.** Every EU country has to run a guarantee institution that pays workers' unpaid wages when their employer goes insolvent: at least three months' pay (or a set minimum over a longer reference period), up to a ceiling. Employers help pay for it unless the government covers it all, and its money has to be kept out of reach of any employer's insolvency ([EU Directive 2008/94/EC](https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32008L0094)).
 - **A warning: America's pension insurance.** The federal agency that insures private pensions has charged premiums only loosely tied to each plan's risk. The Congressional Research Service put them at "about half of the market price for the insurance." Companies in trouble let their pension plans fall further behind before going bankrupt and handing them over. By 2004 the program's deficit had reached $23 billion ([Congressional Research Service, 2004](https://www.everycrsreport.com/reports/RL32702.html)). Insurance that doesn't charge for risk invites risk.
 ## The insurance pool
 Every locked co-op belongs to a **members' savings insurance pool**. It protects three things, in this order.
 **1. Final wages.** If a co-op fails owing its workers pay, the pool pays up to eight weeks of each worker's unpaid wages and earned time off. For a low-paid worker, this is usually the biggest loss, and US bankruptcy law only partly protects it: unpaid wages get priority, but only up to $17,150 per worker, and only after secured lenders are paid ([11 U.S.C. § 507(a)(4)](https://www.law.cornell.edu/uscode/text/11/507)).
 **2. Former members' payouts.** When someone leaves, their account becomes a fixed amount the co-op owes them, paid on the account's normal schedule, three to seven years after each credit was made (see [Member Capital Accounts](capital-accounts.md#how-its-paid-out)). They no longer work there and have no say in how it's run, so this is the clearest case for protection. The pool covers these unpaid payouts up to $50,000 per person.
 **3. A protected slice of current members' accounts.** A current member's account is different. It's their share of the risk of owning the business, and they help run it. So only a slice is protected: 80% of the first $10,000. That protected slice earns the plain Treasury rate. Only the part of the account that's still at risk earns the extra two percentage points (see [Member Capital Accounts](capital-accounts.md#how-the-account-grows)). Nobody gets paid a premium for risk they don't carry, and every member keeps some skin in the game.
 **The limits are per person**, across every co-op they've ever belonged to. An account split in a divorce or passed to an estate shares the original person's limit.
 ## How it's paid for
 **By the co-ops, not taxpayers.** The pool has **no government backing**, for the same reason [the bank's](pilot-spec.md#the-decision-rule) debts don't. A public guarantee would be a hidden subsidy, and markets would come to assume it. That's a real difference from credit unions and banks, and it's why the pool has to be run more cautiously than they are. The charter also bars the bank from lending to the pool, buying its assets or paying its claims, so the bank can't become a backstop by the back door. No law can stop a future Congress from bailing the pool out. The best this model can do is keep the promises small enough, and the cut in a bad year plain enough, that a bailout isn't needed.
 - **A deposit to join.** Like a credit union, each co-op keeps a refundable deposit with the pool, worth 1% of what's covered.
 - **Yearly premiums, priced as if nothing will be recovered from members' savings.** Members' accounts rank behind the co-op's lenders, so when a co-op fails, there's usually little or nothing left for them. Premiums assume exactly that. They're set by an independent actuary from a published formula, and audited every year in both directions, like [the bank's rates](pilot-spec.md#what-market-rate-means).
 - **Final-wage cover is one flat rate for everyone,** as in Germany and France. Charging the riskiest co-ops more would charge care workers most for the cover that matters most to them.
 - **Savings cover is priced on things a co-op controls,** like the size of its reserve, how much it owes, and whether its accounts are on time, measured from its audited year-end accounts. Margins set by public payment rates, like Medicaid's, aren't counted against it. The premium can rise by at most one percentage point a year, unless audited accounts show the co-op getting worse.
 - **Deferring is limited.** A struggling co-op can defer up to one year's premium, as a debt to the pool. While it does, new additions to its members' accounts aren't covered, and the pool watches its accounts monthly. Deferred premiums count as nothing in the pool's reserve, and if the co-op fails, they're paid ahead of its members' accounts.
 - **Who pays.** Current members pay for cover of their own slices, out of their account interest, in proportion to each person's protected balance. Members who take all their profit share in cash, as low-income members can, don't pay for cover they don't have. The co-op as a whole pays for final-wage cover, since everyone is covered, and for former members' payouts. Those are debts the co-op owes, and charging the premium to former members would take most of the interest on money they can't touch.
 - **Other ways to cover former members.** A co-op can instead put former members' unpaid payouts in a fully funded escrow account, or back them with a surety bond from an approved insurer. The pool is the default. If private options come in cheaper, that's a useful check on the pool's prices.
 - **The reserve is kept safe.** It's held in Treasury securities by an independent custodian, out of reach of any co-op's creditors, as Europe's rules require of wage funds. It never holds the bank's loans or anything issued by co-ops, which would fail at the same time as the co-ops it insures.
 ## What it should cost
 Nobody has priced insurance quite like this, but the pieces can be estimated from what's known.
 **Final wages: at least 0.25% of payroll.** Europe's wage guarantee funds are the closest match. Both are paid for by employers as a share of payroll:
 - **Germany** pays up to three months of unpaid wages when an employer goes insolvent. Employers paid 0.06% of payroll in 2023 and 2024, and pay 0.15% in 2025 and 2026. After the financial crisis the rate jumped to 0.41% in 2010 ([lohn-info.de](https://www.lohn-info.de/insolvenzgeldumlage.html); [Haufe](https://www.haufe.de/id/beitrag/insolvenzgeldumlage-fuer-2026-HI17106952.html)).
 - **France** covers wages and other amounts owed to workers, including severance, up to a ceiling. Employers pay 0.25% of each worker's pay, up to about €16,000 a month, in 2026 ([Service Public](https://entreprendre.service-public.gouv.fr/actualites/A17906)). In 2009 the rate rose from 0.10% to 0.20%, 0.30% and then 0.40% within a single year ([Eurojuris](https://www.eurojuris.fr/articles/augmentation-du-taux-de-cotisation-ags-au-1er-octobre-2009-10360.htm)).
 Both are run or required by the state and spread across every employer in the country, so their rates are a floor, not a benchmark. This pool covers less, eight weeks of wages, but it covers young, small firms in a few industries, with nothing behind it. So it starts at 0.25% of payroll, plus a charge to build its reserve, and the actuary adjusts from there.
 **Members' savings: probably 2% to 3% of covered amounts a year, and possibly much more.** When a co-op fails, members' accounts and unpaid payouts rank behind its lenders, so the pool should expect to pay almost the whole covered amount. What matters is how often covered co-ops fail owing more than they have. Three rough numbers bracket it:
 - **Closures.** Of US business locations opened in 2013, about 61% were still open after three years, when account cover starts. After that, roughly 7% to 10% closed each year ([Bureau of Labor Statistics](https://www.bls.gov/bdm/us_age_naics_00_table7.txt)). Those are locations, not firms, so some are branches of businesses that carried on.
 - **Not every closure is a failure.** In Census Bureau data, about a third of owners of closed businesses said the business was successful when it closed ([Headd, Census Bureau, 2001](https://ideas.repec.org/p/cen/wpaper/01-01.html)). That suggests something like 5% a year close unsuccessfully. But many "successful" closures were owners retiring or selling, which a locked co-op can't do, so for co-ops the real figure could be higher.
 - **Loan defaults.** Among the SBA's mature loan groups, loans making up 6% to 10% of the money lent eventually defaulted ([GAO-20-618](https://www.gao.gov/products/gao-20-618)). Spread over the life of the loans, that's roughly 1% a year. That's close to a floor: members can lose their savings in failures where the lender still gets paid.
 Worker co-ops may do better. The best study found them about 29% less likely to close, in Uruguay ([Burdín, 2014](https://journals.sagepub.com/doi/10.1177/001979391406700108)). But the pool shouldn't count on that until its own data shows it. So it starts at 2% to 3%: a strong co-op, with a large reserve and little debt, nearer the bottom, a weak one higher. These are starting guesses from rough data, and the pool publishes every year how its actual losses compare.
 **That's expensive.** The protected slice of a current member's account earns only the plain Treasury rate. With the charge to build the reserve, the premium takes nearly all of that interest.
 ## Starting small
 A few hundred co-ops, all started in the same few years, can't spread this risk well. They're all at the riskiest age, and one recession hits them together. So cover comes in stages:
 - **From the start: final wages and former members' payouts,** for every covered co-op. These protect people with no say in how the co-op is run, and final wages are the biggest loss for low-paid workers.
 - **Current members' slices come later,** once the pool has seen about 1,000 years of co-op experience (say, 200 co-ops for five years) and its savings reserve has reached its target. Then each co-op can choose it, but only in a yearly window, based on audited accounts, with cover starting two years later. The pool can refuse a co-op that's showing warning signs. A co-op that opts out can't opt back in for five years. That stops co-ops from joining only when they're in trouble.
 - **Limits follow the reserve, not the calendar.** Every year, the limits are set by a published formula from the reserve the pool actually has, compared with what a bad recession would cost. If covered amounts grow faster than the reserve, the limits wait.
 ## How big the reserve has to be
 Failures come in waves, and the waves last. US business bankruptcy filings ran about 22,000 a year in 2018 and 2019. In the last big recession they rose to about 43,500 in 2008, 60,800 in 2009, 56,300 in 2010, 47,800 in 2011 and 40,100 in 2012 ([American Bankruptcy Institute](https://abi-org.s3.amazonaws.com/Newsroom/Bankruptcy_Statistics/Total-Business-Consumer1980-Present.pdf); [US Courts](https://www.uscourts.gov/sites/default/files/statistics_import_dir/1209_f2.pdf)). Over those five years, that's about six normal years' worth of extra failures. And most small businesses that close never file for bankruptcy at all.
 If savings claims normally run 2.5% of covered amounts, six extra years' worth is about 15%. So:
 - **The target for savings cover is 15% of covered amounts,** not the 1.2% to 2% that government-backed funds aim for. Nothing stands behind this pool, so its reserve has to carry a long recession on its own. It doesn't count on reinsurance, which may not exist for this kind of risk.
 - **For final wages, about 10% of covered wages,** by the same reckoning.
 - **Building it takes time.** Premiums carry an extra point a year for savings cover, and an extra 0.1% of payroll for wage cover, until the targets are reached. For savings cover that takes about fifteen years if the pool doesn't grow, longer if it does, which is why limits follow the reserve.
 - **Surcharges wait for the recovery.** After a bad stretch, premiums can rise by up to one point of covered amounts for up to three years. But the surcharge starts only once national unemployment has stopped rising, so it doesn't hit co-ops at the bottom of a recession. Until then, if claims outrun the reserve, everyone is paid the same share of what they're owed, as below.
 - **Concentration is limited by limits, not refusals.** If one industry or one region grows past a set share of what's covered, cover limits for new additions there are lowered. No co-op is refused cover because of its industry.
 **What it costs, in the standard example.** A mature 40-person co-op might have $300,000 of protected account slices (at most $8,000 a member, and less for members who take their share in cash), $200,000 of former members' payouts outstanding, and about $2 million a year of payroll, with eight weeks of it, about $300,000, covered by final-wage cover.
 | Cover | Premium | A year |
 | --- | --- | --- |
 | Final wages | 0.25% of payroll, plus 0.1% to build the reserve | about $7,000 |
 | Former members' payouts | 2%–3%, plus 1 point to build the reserve | $6,000–$8,000 |
 | Current members' slices, once offered, if the co-op chooses | 2%–3%, plus 1 point | $9,000–$12,000 |
 | **All three** | | **$22,000–$27,000** |
 That's about 4% of the $600,000 annual profit in the [capital accounts example](capital-accounts.md#where-each-years-profit-goes), or about 2% without cover for current members. A strong co-op would pay less, a weak one more. Once the reserve reaches its target, the extra charges stop. The real rates will come from the pool's actuary and its own experience.
 ## Who runs it, and how claims are paid
 - **A federal charter.** The pool is created by the same federal law as the bank, with a named federal regulator, capital standards, and a clause saying state insurance law doesn't apply to it. Otherwise it would need a license in every state, and federal law generally leaves insurance to the states unless Congress says otherwise.
 - **An independent board.** Most of its members are independent (actuaries, former insurance regulators, people with no stake in any co-op), appointed by a body separate from the bank, for fixed staggered terms, and removable only for cause. A minority are elected by covered workers. None represent the co-ops that pay premiums, so the biggest co-ops can't keep their own premiums low at everyone else's expense. Board members step aside from anything involving their own co-op. Limits on premiums are written into the charter, and a co-op can appeal its rate to the independent adjudicator.
 - **Checked every year.** An outside actuary publishes an opinion on the pool's reserves, and federal auditors audit it. The pool and the bank are stress-tested together, since the same recession would hit the bank's loans and the pool's claims at once. If the reserve falls below its target, the board publishes a plan to restore it within 90 days, and limits stop rising until it does.
 - **One pool, one register.** Federations can run their own pools only once each meets the national pool's reserve ratio on its own, since pools of co-ops all lose in the same recession. There's one national register of everyone covered, so the per-person limits hold across pools.
 - **Automatic payment.** When a covered co-op fails, the pool pays from the co-op's own member register and payroll records. Nobody has to know to file a claim. Fagor's former workers lost their case partly because they filed too late. Disputes go to an independent adjudicator. Final-wage payments are wages, so the pool or the liquidator pays them through payroll, with the usual withholding.
 - **The pool steps into the workers' shoes.** Once it pays wages, it takes over the workers' priority claims in bankruptcy ([When a Locked Co-op Goes Bankrupt](bankruptcy.md)) and under federal and state notice and wage laws, so it recovers what it can. Workers are never paid twice for the same weeks. Some states can make a company's largest owners personally liable for unpaid wages. In a co-op, those are workers, so the pool doesn't pursue ordinary members, only directors who hid losses.
 - **Stepping in early.** Every covered co-op sends the pool quarterly accounts. If warning signs appear, the pool can stop covering *new* additions to accounts until the co-op recovers, which stops members from piling up covered savings in a sinking firm. That freeze also applies to anyone who leaves after it starts, so members can't escape it by quitting.
 ## Closing the loopholes
 - **No paying out phantom profits.** Before paying, the pool's own auditor or the liquidator rechecks the last three years of accounts, and for former members, the years since they left. Losses that were hidden or booked late are charged to accounts first. A covered balance can never be more than the allocations reported to the IRS.
 - **No quitting to upgrade your cover.** A current member's slice is covered up to $8,000, and a former member's payout up to $50,000. So for the first three years after someone leaves, their payout is covered only like a current member's slice. Anyone who left before a failure has their balance recalculated to share the losses of the years since they left. Someone rehired within three years goes back to current-member cover. And if an unusual share of the co-op's accounts leaves in one year, those departures get only current-member cover.
 - **No stuffing accounts.** Amounts added to accounts in the year before a failure are covered only up to the co-op's normal split, meaning its average over the previous five years.
 - **No inflated final wages.** Covered pay is the lower of a worker's average over the previous 12 months and what appears in the co-op's payroll tax filings. Paid time off counts only at the co-op's normal accrual. In a co-op's first year, final-wage cover is four weeks, not eight.
 - **No paying insiders first.** Loans that directors or members guaranteed personally, repaid in the year before a failure while wages went unpaid, are clawed back.
 - **No cover for brand-new shells.** Account cover starts after a co-op's first three years of audited accounts, and every covered co-op must pass the same checks as bank borrowers: real members doing most of the work, verified against payroll records (see [Guarding the Pilot](pilot-safeguards.md#the-hidden-boss)).
 - **No trading claims.** Covered claims can't be sold or transferred, except in a divorce or to an estate.
 - **No underreporting.** Payouts are based on the lower of what the co-op reported and what it actually owed. Unpaid premiums are charged to directors and to uncovered balances, not to protected ones, and directors who file false reports are personally liable.
 ## What the pilot records
 The pool files its pricing model before the first co-op is covered, and each year publishes its predicted losses against its actual ones. For every claim, it records the covered amount at failure, what was recovered, and how long payment took, by type of cover. It also publishes which co-ops deferred premiums and which chose current-member cover, and compares wage losses with those at the matched conventional firms in [the pilot](pilot-spec.md#who-co-ops-are-compared-against). That's how the next design gets real numbers instead of these.
 ## No selling savings as something they're not
 Both Fagor and the Italian co-ops got into trouble partly because members' money was held in things that looked like bank deposits. So:
 - **A locked co-op can't take savings deposits** from its members, or sell them bonds or other investments. A member's only money in the co-op is their capital account.
 - **Every member gets a plain statement each year** of how much of their account is protected, how much isn't, and what the pool can and can't promise.
 ## What it can't promise
 - **A wave of failures could outrun the pool.** Co-ops in the same region or industry tend to fail together, in the same recession. The reserve target is sized for a recession like 2009's, but not a worse one, and it takes years to build. If claims exceed what the pool has, it pays everyone the same share of what they're owed at once, then pays the rest as money comes in. That rule is published in advance, and members are told about it every year. This model gives the pool no government backing, so it can't promise more. **It's insurance, not a guarantee.**
 - **It starts small.** It will be weakest in its early years. That's why coverage phases in, current members' slices come later, and account cover starts only after three years.
 - **Members pay for it, and it isn't cheap.** Premiums come out of account interest and profit. Insuring current members' savings could take most of the interest on the protected slice, which is why co-ops can choose not to. That's the honest price of making savings safer.
 - **Bankruptcy law may not cooperate.** Courts can push former members' claims to the back of the line, behind other creditors, which makes the pool's recoveries even smaller. That's another reason it assumes nothing comes back.
 - **The legal form needs Congress.** Without the federal charter, a pool like this is insurance under state law, needing a license in every state. Whether insured capital accounts raise questions under securities law is also unsettled. Both are listed in [Open Problems](open-problems.md).
@@ -0,0 +1,104 @@
 ---
 title: "After a Pass: How Big, How Fast"
 section: Growing the Sector
 order: 68
 summary: Even if the pilot passes, a co-op sector big enough to change how other employers treat workers is decades away nationally, so growth comes in capped stages sized to audited demand, and the labor-market effect gets its own test in a few local markets.
 ---
 # After a Pass: How Big, How Fast
 The pilot tests one thing: can worker co-ops compete, survive and repay market-rate loans ([The Test](the-test.md))? That's the case for the bank, and it stands on its own: people get to govern their own workplaces, and the public gets its money back. The bigger hope is different. If co-ops become common enough, conventional employers would have to treat workers better or lose them to co-ops. That's the **labor-market effect**. The pilot can't test it, because about 400 co-ops employing perhaps several thousand people won't move anyone's wages.
 This page works through what comes after a pass: how big the sector would have to get, how long that could take, how to grow without lowering standards, and how to find out whether the effect is real without waiting decades or promising it in advance.
 ## How big is big enough?
 Nobody knows. But three kinds of evidence give a sense of it, and they don't all point the same way.
 **When big retailers raised their own pay, other employers didn't follow.** From 2014 to 2023, large retailers like Amazon, Walmart and Target set their own company-wide minimum wages. Those covered over 3 million jobs. A study using payroll records for thousands of firms found the policies raised pay and cut turnover at the companies that adopted them. But the effect on other employers' pay, even ones that hired from the same workers, was "precise" and "economically negligible." The authors' explanation: the retailers mostly kept their workers longer rather than hiring more, and other employers could still find plenty of people ([Derenoncourt and Weil, 2024](https://www.nber.org/papers/w32546)).
 An earlier version of the Amazon research did find that other employers raised pay too, and it's still widely quoted. Its own authors later found the result came from a flaw in their method, a statistical effect called mean reversion, and with revised methods they found no evidence of it ([Derenoncourt and others, revised 2022](https://www.nber.org/papers/w29425)).
 **When one employer hired a lot in a tight market, others did follow.** The same study describes a different case. When Veterans Affairs hospitals raised pay for registered nurses, nurses' pay at nearby hospitals rose too. The authors think the difference is that nurses are a small, concentrated market, while low-wage retail work is not. So an employer that adds real demand for scarce workers can move others' pay, and one that just keeps its own workers longer mostly doesn't. New co-ops create new jobs, which puts them closer to the nurses' case, but only if they're a big enough share of the market.
 **Unions once lifted pay for non-members, at much higher densities.** In 1977, about 22% of American private-sector workers were in unions. By 2015 it was 7%. One study estimates that if unions were still as common in each occupation and region as in 1977, non-union men would earn about 6% more, around $3,200 a year, and non-union women about $900 more. That's the "threat effect": employers paid more to keep unions out. It showed up where unions were dense in a particular occupation and region, not as a national average. The study compares places and times, so it can't prove cause and effect ([Denice and Rosenfeld, 2018](https://doi.org/10.15195/v5.a23)). And co-ops don't work the same way. A union threat happens inside your current job. A co-op only helps workers who can leave for one or buy their own workplace. So this suggests a scale, not a target: an effect like that came with about one private-sector worker in five.
 **The biggest co-op sectors are still small shares.** Mondragon is the largest employer in the Basque Country ([Co-operative News](https://www.thenews.coop/mondragon-worker-co-op-federation-reports-sales-of-e11-213bn/)), and about 30,660 of its 70,000 workers were there in 2024, not all of them members ([Wikipedia, citing Mondragon's 2024 annual report](https://en.wikipedia.org/wiki/Mondragon_Corporation)). That's about 3% of the roughly 995,000 people working in the Basque Country ([Eustat, via Orain](https://orain.eus/es/actualidad/economia/2025/01/21/las-personas-ocupadas-bajan-0-2-y-tasa-de-paro-se-mantiene-en-7-1-pero-con-1100-parados-menos/)), after almost 70 years. France, with one of the best-supported worker co-op sectors in the world, counted 87,699 people working in its worker co-ops and a related form of community co-op in 2024 ([ESS et société, reporting CG Scop](https://www.ess-et-societe.net/Les-Scop-et-Scic-poursuivent-leur-croissance-avec-87-699-salaries-4-et-un-CA-de-10-2-milliards-d-EUR-6)).
 So the honest answer: any effect is likely to show up locally, in particular jobs in particular places where co-ops are a big share, long before it shows up in national numbers. Whether it shows up at all is what the local test below is for.
 ## How long could it take?
 America had about 136 million private-sector jobs in August 2026 ([Bureau of Labor Statistics](https://www.bls.gov/news.release/empsit.t17.htm)). One percent of that is about 1.36 million.
 Nobody knows how many people work in American worker co-ops today. The sector's census counted about 751 co-ops in 2023, triple the number a decade earlier ([NCEO summary of the Democracy at Work Institute census](https://www.nceo.org/employee-ownership-blog/democracy-at-work-institute-releases-its-2023-worker-cooperative-state-of-the-sector-report)), but only 242 firms answered its latest survey, too few to add up workers ([US Federation of Worker Cooperatives](https://www.usworker.coop/census/)). So suppose, as a round assumption, that 20,000 people work in them by the pilot's year 12. To reach 1% or 3% of today's private jobs:
 | If the sector grows by | 1% of private jobs in | 3% (Mondragon's Basque share) in |
 | --- | --- | --- |
 | 12% a year, about the pace at which the number of co-ops tripled over the last decade | about 37 years | about 47 years |
 | 25% a year, twice that pace, every year | about 19 years | about 24 years |
 These are minimums. The number of jobs keeps growing, so the target keeps moving. The 12% pace comes from the number of co-ops, not the number of workers. And fast growth is hard to sustain. Starting from fewer than 20,000 workers makes every figure longer.
 So nationally, even a clear success likely means decades before co-ops are common enough to matter to most workers. That's the price of not forcing it, and I'd rather say so now than have someone discover it later.
 ## What fast growth has looked like
 **Rural electric co-ops grew fast, in conditions this model doesn't have.** In the mid-1930s, nine in ten rural American homes had no electricity. By 1953, over 90% of farms had it. The federal Rural Electrification Administration lent to co-ops of farmers who wired the countryside themselves, and two years after it started there were already 350 co-op projects in 45 states ([EH.net](https://eh.net/encyclopedia/rural-electrification-administration/); [America's Electric Cooperatives](https://www.electric.coop/our-organization/history)). Two things made that speed possible. Private utilities had refused to serve those areas, so the co-ops had no competitors. And the loans were cheap: 25 years to repay, and from 1944 an interest rate fixed at 2%, whatever the market charged. This model has neither. Co-ops compete with established firms in every industry, and they pay market rates. The electric co-ops also carry a warning. They built defenders in almost every congressional district, and critics can fairly say those defenders kept cheap loans flowing long after the original job was done ([Making It Last](durability.md)).
 **Employee ownership with tax breaks grew big, in a different form.** In 2023, about 6,400 American companies had employee stock ownership plans (ESOPs), with 10.9 million active participants ([NCEO](https://www.nceo.org/research/employee-ownership-by-the-numbers)). That's equal to roughly 8% of private-sector jobs, though participants aren't the same as jobs, and a plan can own only a small slice of its company. It's the biggest American case of ownership spreading through ordinary finance, and it took 50 years and large federal tax breaks. ESOPs don't give workers one member, one vote. I haven't found any study of whether they lift pay at other employers.
 ## Growing in stages
 If the pilot passes, the charter sends Congress a fast-track vote on more capital ([The Pilot, in Numbers](pilot-spec.md#the-decision-rule)). Here's how the growth after that is meant to work:
 - **Each stage is sized to audited demand, not a target.** The bank can ask for enough capital to fund the good applications it had to turn away for lack of money, plus at most 20%. Only unique applicants count, only those that met the bank's filed lending standards, and the count is certified by the independent reviewers, not the bank ([Making It Last](durability.md)). Delays don't count. There are still no lending or job targets. An institution with a target lowers its standards to hit it, which is what sank Venezuela's co-op push ([The Pilot, in Numbers](pilot-spec.md#two-warnings-from-real-life)).
 - **Capped growth.** No stage can more than double the bank's capital. A bank that suddenly has to find ten times as many borrowers will lower its standards without meaning to.
 - **Demand can't be starved, either.** Applications and approval rates are published against the pilot's own. A hostile administration can't cut outreach, tighten what counts as "good," and then claim nobody wants to borrow, because the reviewers already check a sample of rejected applications every year and publish how many met the standards anyway ([Making It Last](durability.md)).
 - **The same rules at every stage.** Market rates, the same underwriting, the same limits by industry and county, and no federal guarantee on anything the bank borrows.
 - **Growth follows the evidence for each kind of work.** Lending to co-ops in lower-paid work is sized from that group's own result. If the pilot had too few of them to tell, that lending can't grow faster than the rest ([Who the Bank Lends To](who-gets-loans.md#results-by-group)).
 - **The same measures, published for every new group of co-ops.** Each later round of capital is its own vote in Congress, so every Congress sees how the newest co-ops are doing, not just the pilot's. A passed test shows that co-ops funded one way, at one size, could compete. It doesn't show the same is true at a larger volume, when the bank has to reach further for borrowers.
 - **The full public cost, every year.** The bank publishes its all-in cost to taxpayers per co-op job: losses, running costs, all business help, and what the public's capital could have earned in Treasury bonds instead.
 ## Testing the labor-market effect
 The pilot can't test it. But once the sector grows, it can be tested locally, without waiting decades and without deciding anything in advance.
 The model is a French experiment that started in 2007. Researchers wanted to know whether job counseling for young unemployed people really created jobs or just moved them from one job seeker to another. They randomly chose what share of eligible people would get counseling in each of 235 local labor markets: 0%, 25%, 50%, 75% or 100%. The counseled did find stable jobs faster. But the gains were short-lived, and partly came at the expense of people in the same markets who weren't counseled, especially in weak markets ([Crépon and others, 2013](https://www.nber.org/papers/w18597)). A test of individuals alone would have missed that.
 The same idea can test co-ops.
 ### Where
 - **A few kinds of work** where the pilot showed co-ops can compete. At least one should be work where employers really set pay. In home care, for example, pay depends heavily on what Medicaid reimburses, so employers may not be free to respond. Where that's true, changes in reimbursement are measured and controlled for.
 - **Local labor markets drawn by lottery,** from a pool whose rules are written into the charter: labor markets defined by commuting patterns, a set size range small enough that co-ops could plausibly become a large share of the work, and local governments that opt in. The draw is public, and its random seed is published in advance. Members of Congress can't add or remove places.
 - **Different levels of help, not just yes or no,** as in the French experiment: some markets get none, some get a moderate level, and some get a high level of outreach and [help before the first loan](before-launch.md), including outreach to owners who might sell to their workers ([When an Owner Wants to Sell to the Workers](buyouts.md)). Each chosen market gets a minimum outreach budget, so a hostile administration can't quietly starve it.
 ### What doesn't change
 **Lending.** Loans in the chosen markets go through the same underwriting, at the same rates, under the same limits by industry and county as everywhere else. Only the outreach and help are concentrated. If the concentration the test needs would break those limits, the limits win, and the test is smaller.
 ### What gets measured
 - **What happens to co-ops.** Their share of the work in each market, with a minimum share filed in advance that counts as "reached."
 - **What happens to conventional employers** in the same kind of work: pay, turnover, hours, and working conditions where records exist, like injuries.
 - **Who gains.** Results by gender, race and ethnicity, and co-op membership compared with the local workforce. Most home care and cleaning workers are women, many of them Black, Latina or immigrant workers, and the union evidence found much smaller gains for women.
 - **Whether co-ops actually let people in.** Co-op job openings, how long it takes new hires to become members, and the share of work done by non-members. A large co-op sector that doesn't hire is no outside option for anyone.
 - **The costs.** Total jobs in the market, conventional firms closing, and prices where they can be measured, so that higher pay bought with lost jobs or higher prices shows up.
 **The data.** Government wage records, like the Census Bureau's Quarterly Workforce Indicators, which report pay, hiring and turnover by industry, place, gender, race and ethnicity. The detailed records are used only inside secure federal research centers, and nothing is published that identifies a business. Co-op borrowers agree, as a loan condition, to have their records linked. Home care and cleaning include a lot of work that wage records miss, like independent contractors and households paying workers directly, so worker surveys fill in. An independent team named in advance does the analysis, and its data access can't be revoked by the administration. Pay is tracked for at least five years, because an incumbent could raise pay briefly to stop co-ops forming and cut it once they're gone.
 ### Filed in advance
 The markets, the kinds of work, the measures, the analysis and a power calculation are filed before the draw. The power calculation states the smallest effect the test could detect. The goal is on the order of 100 markets. If the smallest detectable effect is bigger than any effect that's plausible, the test isn't run, because an expensive test that can't find anything isn't worth running.
 **This test decides nothing by itself.** It isn't part of the pass-or-fail rule, which stays about whether co-ops can compete. Its results are published for voters and Congress to weigh. If co-ops never reach the filed share in the chosen markets, the result is "not tested." If they do and conventional employers don't change, the result is "no effect," and it's reported that way.
 ## What this doesn't solve
 - **Nationally, it's slow.** Even a clear pass likely means decades before co-ops are common enough to change most workers' options. Nothing here speeds that up. Other policies, like sector-wide wage boards and support for unions, aim at the same goal faster. This model doesn't replace them.
 - **The effect is unproven.** The closest evidence cuts both ways: big retailers paying more didn't lift others' pay, and hospitals hiring nurses did. Co-ops might differ from both, because they offer ownership and a vote, not just pay. That's what the local test is for.
 - **The local test may be too small.** Even with about 100 markets, only a fairly large effect will show up. Co-ops may never reach the filed share anywhere. And the union evidence behind the scale estimate comes from comparing places, not from an experiment.
 - **Concentrating help will be called unfair.** Conventional employers in the chosen markets will say the government is helping their competitors. The honest answer is that lending terms don't change, the help is time-limited and published, local governments opt in, and it's the only way to learn whether the effect is real. It won't stop the attack.
 - **Growth can outrun judgment.** Audited demand, capped stages and published results are the defenses. None of them is airtight.
 - **Success builds a lobby.** If the sector grows, its members will defend the bank, as the electric co-ops defended theirs. That's why growth depends on the published results and a vote each time, not on how many friends the bank has.
@@ -0,0 +1,131 @@
 ---
 title: How a Locked Co-op Is Taxed
 section: The Co-op
 order: 25
 summary: Federal tax law already lets worker co-ops pay tax on members' profit shares only once, but only if profit is shared by hours worked, so this page fits the model's rules to that law, says what it costs, and lists what the IRS or Congress still needs to confirm.
 ---
 # How a Locked Co-op Is Taxed
 This model relies on an old part of the federal tax code, called Subchapter T, that lets co-ops pass profit to their members and have it taxed only once. Get the details wrong and a co-op pays tax twice on the same profit, which would sink the test for reasons that have nothing to do with whether co-ops work. This page works through those details. It describes federal law as it stands in 2026. It isn't tax advice, and each co-op's bylaws need a tax lawyer's review.
 ## How co-ops are taxed today
 An ordinary corporation pays 21% federal tax on its profit ([26 U.S.C. § 11](https://www.law.cornell.edu/uscode/text/26/11)). When it pays what's left to shareholders as dividends, they pay tax again.
 A corporation run as a co-op can skip the first tax on the profit it pays back to the people it does business with, called **patronage dividends** ([§ 1382](https://www.law.cornell.edu/uscode/text/26/1382)). They pay income tax on them instead ([§ 1385](https://www.law.cornell.edu/uscode/text/26/1385)). To count, a patronage dividend has to be ([§ 1388](https://www.law.cornell.edu/uscode/text/26/1388)):
 - **Paid according to how much business each person did with the co-op.** In a worker co-op, the "business" is work, and most US worker co-ops divide profit by hours worked ([Democracy at Work Institute guide](https://institute.coop/sites/default/files/resources/Internal-Capital-Accounts.pdf)). The Tax Court accepted a plywood co-op's split by hours in 1965 (*Puget Sound Plywood v. Commissioner*, 44 T.C. 305), though that case was decided under the law before Subchapter T. Today's practice rests on the IRS accepting it since.
 - **Owed under rules set before the profit was made,** like bylaws adopted in advance.
 - **Not taken from other people's share.** A patronage dividend can't include money from the business of people who got nothing, or got less for the same thing ([§ 1388(a)](https://www.law.cornell.edu/uscode/text/26/1388)). The Treasury's example: if a co-op pays nothing to its non-member customers, the part of members' dividends that came from business with them isn't a patronage dividend ([26 C.F.R. § 1.1388-1(a)(2)](https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFRc609157f1a908c0/section-1.1388-1)). That part is taxed twice.
 Money kept in members' [capital accounts](capital-accounts.md) counts too, if at least 20% of each dividend is paid in cash and the member has agreed to be taxed on the rest now. A bylaw can make membership count as agreement, but only if each member gets a written notice and a copy of the bylaw ([§ 1388(c)](https://www.law.cornell.edu/uscode/text/26/1388)). With automatic membership ([When People Don't Stay Long](high-turnover.md)), that notice is handed over, and signed for, when someone joins. Everything has to be paid or credited within eight and a half months after the year ends.
 **The reserve is taxed.** Profit the co-op keeps for itself isn't paid to anyone, so the co-op pays the 21% on it. US worker co-ops that keep a permanent reserve already work this way ([Democracy at Work Institute guide](https://institute.coop/sites/default/files/resources/Internal-Capital-Accounts.pdf)).
 **In the standard example** from [Member Capital Accounts](capital-accounts.md#where-each-years-profit-goes), a co-op makes $600,000. The $360,000 paid to members is taxed once, on their own returns. The $180,000 for the reserve is taxed at 21%, about $37,800, so about $142,000 is actually saved. If the $60,000 paid to the federation fund can't be deducted, the tax is about $50,400. Whether it can depends on how the federation is set up (see below).
 ## Why a locked co-op is a corporation
 Many small businesses are partnerships, or LLCs taxed as partnerships, which pay no business-level tax. That doesn't work here, for two reasons:
 - **Partners can't be employees.** The IRS treats partners as self-employed, not as employees of their own partnership ([IRS, Publication 541](https://www.irs.gov/publications/p541); [IRS practice unit](https://www.irs.gov/pub/fatca/int_practice_units/self-employment-tax-partners.pdf)). [The pilot](pilot-spec.md#who-can-borrow) requires members to be on the payroll, so they have minimum wage and workers' compensation, and unemployment insurance in most states ([Owners Are Still Workers](labor-law.md)).
 - **Partners are taxed on all the profit, including what's kept.** Members would owe tax each year on their share of a reserve they can never take out.
 So a locked co-op is a corporation, or an LLC that chooses to be taxed as one ([26 C.F.R. § 301.7701-3](https://www.law.cornell.edu/cfr/text/26/301.7701-3)), and files the co-op version of the corporate tax return.
 ## Does a locked co-op count as a co-op?
 Subchapter T applies only to a corporation "operating on a cooperative basis" ([§ 1381](https://www.law.cornell.edu/uscode/text/26/1381)). Courts and the IRS read that as three things: members control it democratically, capital doesn't control it or take its profits, and profit goes back to the people who did business with it, according to how much they did. If a co-op fails this test, it loses Subchapter T entirely, not just one dividend.
 Two features of this model could strain the test:
 - **The lock-holder.** An outside organization holds a share that can veto a sale ([The Lock](the-lock.md)). But that share carries no profit and no say in running the business. It only blocks the co-op from being sold.
 - **The reserve goes to the federation, not the members, if the co-op closes.** Some US worker co-ops already write this into their bylaws, sending leftover assets to groups that support co-ops ([Democracy at Work Institute guide](https://institute.coop/sites/default/files/resources/Internal-Capital-Accounts.pdf)). But no ruling covers it for this model's co-ops.
 This is the first question for the IRS, and for Congress (see [Getting certainty](#getting-certainty)).
 ## The model's rules, fitted to the law
 ### What counts as an hour
 Profit shares follow hours, so hours have to be defined in advance, in the bylaws:
 - **Hours paid**: hours worked, as wage law counts them, plus paid leave and state paid family leave.
 - **Salaried staff count 40 hours a week.** Overtime counts once, not time and a half. No one counts more than 2,080 hours a year.
 - **Only hours on the payroll records** that match the co-op's quarterly payroll tax filings. Time on committees and the board counts only up to a small share of a person's hours. The co-op's auditor checks a sample of timesheets each year.
 Unpaid leave, even protected leave, isn't paid hours. Crediting hours nobody worked could mean paying one person out of another's work, which the rule above forbids. So a co-op that wants leave to count has to offer paid leave. Time on leave still counts toward the ramp, as [Worker Ownership](worker-ownership.md) promises.
 ### Wages first
 Before any profit is shared, every worker is paid at least the going rate for their job for their hours ([Investing for the Long Run](the-long-run.md#the-rules)). If the year's wages fell short, the shortfall is paid first, as wages.
 Why: members are employees. If a co-op paid itself low wages and large profit shares, the IRS could say the profit shares are really wages in disguise, and owe payroll tax (Social Security and Medicare) and penalties. That's the same argument the IRS uses against small-business owners who pay themselves too little salary. Paying the going rate first makes the profit share clearly profit. It also helps low-paid members: wages count toward the Earned Income Tax Credit and Social Security, and profit shares don't.
 ### One rate per hour, for everyone who works
 The members' profit pool is divided by hours worked. Before the ramp, every hour earns the same amount, and "everyone's share is identical" means identical **per hour**. A part-timer who got the same check as a full-timer would be collecting from the full-timer's work.
 **Non-members get a share too.** The tax law's word is "patron," not "member," so people on probation, and people who chose not to join, can receive patronage dividends. In this model they get the same share per hour as a member starting the ramp, all in cash. The rest of what their hours earned goes to the reserve, on top of the 30% minimum. The reserve still benefits the co-op, which members govern, but no member's own check comes from a non-member's work. Hiring non-members can't raise members' profit shares.
 ### The tenure ramp
 The founding plan has a new member start at a partial profit share and reach a full one over five to ten years ([Worker Ownership](worker-ownership.md)). As first written, the part a new member didn't get went to the other members. The tax law doesn't allow that: a new member and a ten-year member who work the same hours are doing the same business with the co-op, so the ten-year member can't be paid out of the new member's work without that part being taxed twice.
 **So the ramp's unpaid part goes to the reserve.** A member at half a share gets half the per-hour amount. The other half goes to the reserve, on top of the 30% minimum.
 **What that costs, in the standard example.** Say the 40 members are 32 at a full share and 8 new members at half a share, all working the same hours. As first written, full members got $10,000 and new members $5,000. Now the $360,000 pool is $9,000 for each member's hours. Full members get $9,000. New members get $4,500, and the other $4,500 of each, $36,000 in all, goes to the reserve, which gets $216,000 instead of $180,000. If new members work fewer hours than the others, the full members lose less. In a co-op where few members are new, they lose little.
 That changes what the ramp does. The founding plan's reason for it was to stop every new hire from cutting into everyone else's share. Now it doesn't do that: a new member's hours count in dividing the pool from the start. What the ramp still does is make new members earn their way to a full share, with the difference building up the co-op's own reserve instead of senior members' checks.
 **Two other ways, both with costs.** A co-op can choose either in its bylaws, before the year starts:
 - **Pay the ramp as a wage for years of service.** Everyone gets the per-hour profit share at the starting rate. Senior members get the rest as a pay supplement for years of service, which employers can pay and deduct. That keeps the founding plan's shield for senior members, but it costs payroll tax, about 15% split between the co-op and the member, on most of the profit share. And wages can't be held in capital accounts, so the accounts, and the money the co-op can reinvest from them, shrink.
 - **Ask the IRS to accept the old result.** The unpaid part could count toward the reserve's 30% minimum, which lets the co-op put that much more into the members' pool, so senior members get what they did before. But then senior members gain exactly what new members give up, and the IRS could fairly say it's the old formula by another route. It's only an option if the IRS rules that it's allowed.
 ### Capital accounts
 - **The usual way.** Members agree to be taxed now on what's credited to their accounts, and at least 20% is paid in cash. The model's default is half in cash, which covers the tax for most members.
 - **Members with lower incomes can choose not to be taxed until they're paid.** The law allows a second kind of credit, a "nonqualified" notice. The co-op pays the 21% now and gets it back as a deduction when the account is paid out, and the member pays tax only when they receive the money ([§ 1382(b)(2)](https://www.law.cornell.edu/uscode/text/26/1382)). That's the default for members under twice the poverty line who leave money in their accounts. They can still take their whole share in cash instead ([Member Capital Accounts](capital-accounts.md)).
 - **Charges come out of this year's share first.** Money members already paid tax on can be moved back to the reserve, under [the pay rule](the-long-run.md#the-rules) or when losses are charged to accounts. That's probably taxable to the co-op a second time, and the member may be able to deduct only part of it. So those charges come out of the current year's profit share first, before it's credited or taxed, and reach older balances only when that isn't enough. Credits to accounts that are likely to be charged later can be made as nonqualified notices.
 ## Payroll tax on profit shares
 Wages carry payroll tax, about 15% in all, split between the co-op and the worker. Whether patronage dividends paid to worker-members do too is unsettled. The likelier challenge is that profit divided by hours worked is really wages. A second theory is that it's self-employment income. The IRS has claimed the second against members of at least one worker co-op, then backed down when challenged, without a published explanation ([Gregory Wilson, co-op tax lawyer](http://www.gwilson.com/documents/Article4(PatronageDivTax).pdf)). His argument: a member paid a fair wage through payroll is like a shareholder who works for the company, and a shareholder's dividends don't carry payroll tax. The wages-first rule is built to support that argument.
 If the IRS wins, members pay about 15% more on their profit shares. Low-paid members would at least earn Social Security credit and Earned Income Tax Credit on it.
 ## Benefits
 Profit shares count as income for Medicaid, health insurance subsidies, food assistance and housing aid, even when they're kept in an account. A lump sum can push a family over a limit for a month or a year. So:
 - the lower-income defaults above keep account credits from counting until they're paid;
 - anyone can ask for a payout from their account in up to 12 monthly payments, so one payment doesn't push them over a limit for savings, like the one for Supplemental Security Income;
 - the federation offers benefits advice to every member, along with the templates and training it already supplies ([The Federation](federation.md)).
 ## Getting certainty
 The IRS gives binding answers on specific facts, called private letter rulings, but only to the taxpayer who asks, only about its own real transactions, and never as precedent for anyone else ([26 U.S.C. § 6110(k)(3)](https://www.law.cornell.edu/uscode/text/26/6110)). A ruling costs a fee and often takes months, and the IRS can decline to give one. So:
 - **The first pilot co-ops ask, and the bank pays.** They ask whether the co-op operates on a cooperative basis with the lock and the reserve, whether the per-hour profit shares and the ramp count as patronage dividends, whether profit shares carry payroll tax when wages meet the going rate, and how charges moved back to the reserve are taxed.
 - **Until then, every co-op uses the rules on this page, and gets a tax lawyer's opinion on its bylaws.** None of them depends on a ruling to work.
 - **Congress settles it.** The bank's own law needs Congress anyway, and so does [the bankruptcy amendment](bankruptcy.md). That law also says a locked co-op that meets these rules operates on a cooperative basis, and that its profit shares aren't wages for members paid at least the going rate. That's a statement of how existing law applies, not a lower tax rate.
 ## How this compares with other businesses
 A co-op isn't taxed more lightly than other small businesses, and it isn't taxed much more heavily either:
 - **Profit paid to members** is taxed once, at their own rates. Owners of partnerships and S corporations (small corporations taxed like partnerships) are taxed the same way on the profit they take.
 - **Profit the co-op keeps** is taxed at 21% and never again, because nobody can ever take it out. A conventional corporation's kept profit is taxed at 21% and again when it's paid out. A partnership's or S corporation's owners are taxed on it at their own rates, which can be higher or lower, and they own it.
 - **The difference that matters:** a conventional owner's kept profit is still theirs. The co-op's reserve belongs to no one, and it still pays tax. That's a cost of the lock, and this model doesn't ask for a tax break to cover it.
 ## What this doesn't solve
 - **The ramp no longer shields senior members.** Under tax law, the founding plan's reason for the ramp works only through the reserve, through payroll tax, or with the IRS's blessing. Which is best is open.
 - **Workers without work authorization can't be members.** Being on the payroll requires it. Some immigrant cleaning co-ops today are partnerships partly so members with only a taxpayer number can be owners. This model can't do that without giving up payroll protections, and it leaves those workers out.
 - **Unpaid leave costs profit share.** Mostly for women, unless the co-op pays for leave.
 - **States differ.** Most states follow the federal treatment of co-ops. But some tax a business's gross receipts, like Ohio and Washington, where the patronage deduction doesn't help. And some states' co-op laws may send leftover assets to members when a co-op closes, which would clash with the lock. Each pilot state needs checking.
 - **The federation's form matters.** If the federation fund is a charity, a co-op's payments and a closing co-op's reserve are gifts, and corporations can deduct gifts only up to a limit ([§ 170(b)(2)](https://www.law.cornell.edu/uscode/text/26/170)). If it's a trade association, payments may be deductible as a business expense. The choice isn't made.
 - **Interest on accounts may not be deductible.** The formula pays extra interest only in profitable years, which could make it look like a dividend on capital. If so, it's paid from taxed profit.
 - **It's a lot of paperwork.** A co-op tax return, a patronage form for every worker, written notices, consent records, hours tracking, and the ramp. The federation provides standard software and filing help at cost, and the pilot's business help pays for setting it up.
@@ -15,13 +15,13 @@ Mondragon's history supports the first half of the premise. For decades, apart f
 **Design:**
- **Charter:** lends only to firms that meet the [co-op definition](worker-ownership.md) and accept [the lock](the-lock.md). The bank can't widen its own charter. Mondragon's bank drifted into ordinary lending after a change in the law, and America's co-op bank drifted toward the safest co-ops once nothing held it to its target (see [Has This Been Tried?](precedents.md)). A charter can't stop Congress from changing it, but the fixed measures and deadline in [The Test](the-test.md) mean a mission change can't happen quietly.
+- **Charter:** lends only to firms that meet the [co-op definition](worker-ownership.md) and accept [the lock](the-lock.md). The bank can't widen its own charter. Mondragon's bank drifted into ordinary lending after a change in the law, and America's co-op bank drifted toward the safest co-ops once nothing held it to its target (see [Has This Been Tried?](precedents.md)). A charter can't stop Congress from changing it, but the fixed measures and deadline in [The Test](the-test.md) mean a mission change can't happen quietly. Drift inside the charter, toward the safest co-ops, is handled by money set aside for co-ops in lower-paid work and results published by group ([Who the Bank Lends To](who-gets-loans.md)).
 - **Priced at market rates.** This is deliberate. The bank's edge must be *willingness* to underwrite a firm structure other lenders refuse, not *cheap money*. If it lends below market, every result is unfalsifiable: success gets dismissed as "free state money," failure gets dismissed as "hobbled by the lock." At market rates, survival and returns mean something.
- **Professional, insulated underwriting.** Loan officers are bankers, not appointees. Lending decisions are walled off from legislators the way monetary policy is walled off from Congress. A bank that funds whichever co-op has the best-connected sponsor fails the experiment and deserves to.
+- **Professional, insulated underwriting.** Loan officers are bankers, not appointees. Lending decisions are walled off from legislators the way monetary policy is walled off from Congress. A bank that funds whichever co-op has the best-connected sponsor fails the experiment and deserves to. Since 2026 the Supreme Court has made clear that any president can replace a board like this one at will, so the protection lives in what the board can't change, not in who sits on it (see [Making It Last](durability.md)).
 - **Self-sustaining by design.** One-time capitalization, then it lives on its loan book. Losses are public and published. A permanent appropriation would turn it into a subsidy line, and subsidy lines get captured.
 - **Full transparency.** Portfolio data (default rates, survival, wages, productivity, member retention) published annually, so anyone can check the result, including critics.
-The actual numbers (how much money, how many co-ops, loan limits, and how "market rate" is checked) are in [The Pilot, in Numbers](pilot-spec.md). The rules against sham co-ops and political favoritism are in [Guarding the Pilot](pilot-safeguards.md).
+The actual numbers (how much money, how many co-ops, loan limits, and how "market rate" is checked) are in [The Pilot, in Numbers](pilot-spec.md). The rules against sham co-ops and political favoritism are in [Guarding the Pilot](pilot-safeguards.md). Loans for owners who choose to sell their company to its workers run on a separate track, described in [When an Owner Wants to Sell to the Workers](buyouts.md).
 **Precedent:** this has been tried, in pieces. Congress created a National Consumer Cooperative Bank in 1978, but its law was written for consumer co-ops, and after it was privatized in 1981 it became mainly a lender to housing co-ops. Italy's Coopfond, funded by 3% of co-op profits, has lent and invested in co-ops for three decades and still holds about 91% of what it collected. Italy's Marcora Law puts public money alongside workers' own to fund worker buyouts. The details, including how each went wrong, are in [Has This Been Tried?](precedents.md).
@@ -25,7 +25,7 @@ You need both. They do different jobs. And because the model doesn't force anyon
 The floor, in pieces:
 - A strong minimum wage.
- **Targeted subsidy for essential low-margin work, paid to workers, not firms.** Somebody has to clean the nursing home for the poor. If the sector can't pay, the public does, directly, so the buyer can't absorb the subsidy by bidding less.
+- **Targeted subsidy for essential low-margin work, paid to workers, not firms.** Somebody has to clean the nursing home for the poor. If the sector can't pay, the public does, directly, so the buyer can't absorb the subsidy by bidding less. Who decides what counts as essential, and how to keep every low-wage industry from claiming it, is in [Who Decides What's Essential](essential-work.md).
 - **Funded automation research aimed at exactly those sectors.** If productivity can't rise on its own, raise it. This is explicitly a *transition* strategy: support the workers until the technology lands. Say that out loud, or you end up permanently subsidizing a job you're simultaneously trying to eliminate, and the subsidized workers start lobbying against the automation. (This is what happened with coal.)
 - **A transitional public temp corps.** Companies apply for subsidized labor. The state supplies temps and funds the automation in parallel. Everyone knows going in that the job has a sunset. Voluntary, real wages, open to anyone who wants a bridge.
@@ -16,7 +16,79 @@ What it covers:
 - **No sale to a non-co-op.** A co-op may merge with or be absorbed by another locked co-op. It may never be sold to conventional owners.
 - **No demutualization.** Members cannot vote to dissolve the co-op and split the value. (This is the failure mode that ended many US mutual savings banks and UK building societies: a generation of members cashed out what earlier generations built.)
 - **No outside voting equity.** Outside money comes in only as voteless, expiring claims (see [Capital, After](capital.md)).
- **Membership requirement.** A locked co-op cannot run on hired non-member labor. Workers become members after a defined probationary period (the pilot caps it at 12 months). This blocks the "degeneration" pattern, where a co-op becomes a small ownership club employing a large wage-labor underclass. Mondragon's non-member foreign subsidiaries are the warning case.
+- **Membership requirement.** A locked co-op cannot run on hired non-member labor. Workers become members after a defined probationary period (at most 12 months), automatically unless they opt out. In jobs where most people leave within a year or two, that takes a shorter probation ([When People Don't Stay Long](high-turnover.md)). This blocks the "degeneration" pattern, where a co-op becomes a small ownership club employing a large wage-labor underclass. Mondragon's non-member foreign subsidiaries are the warning case.
 - **Indivisible reserves.** A slice of every year's profit goes to a collective reserve no member can ever withdraw. On dissolution, after debts are paid, remaining assets go to the federation fund, not to the members. Italian co-op law already works this way. It removes the incentive to kill the co-op for its assets.
 What the lock does *not* do: keep failing firms alive. A locked co-op can still go bankrupt, and its assets can still be sold in liquidation. It just can't be sold as a going concern to anyone but another co-op.
 ## Why "forever" isn't as strange as it sounds
 A permanent lock sounds extreme. But plenty of organizations already live under one, and the law already knows how to handle them.
 - **Britain's community interest companies.** Since 2005, UK law has offered a kind of company whose assets are locked to its purpose. Official guidance is blunt: "once a company is a CIC it cannot become an ordinary company" ([UK government guidance](https://www.gov.uk/government/publications/community-interest-companies-how-to-form-a-cic/community-interest-companies-guidance-chapters)). A dedicated government regulator enforces the lock. That hasn't scared people off. There were more than 37,000 of them in 2025, and a record 8,376 were approved that year ([CIC Regulator annual report, 2024–25](https://assets.publishing.service.gov.uk/media/68809f4f28f29c99778a7504/cic-25-01-community-interest-companies-annual-report-2024-2025.pdf)).
 - **Companies that can't be sold.** Some well-known firms, including Bosch, Zeiss and the search engine Ecosia, are "steward-owned": set up so that control can't be sold to outsiders. Bosch and Zeiss do it through foundations. Ecosia uses a simpler device: an independent body holds a single "golden share" whose only job is to veto any change that breaks those rules ([Wikipedia](https://en.wikipedia.org/wiki/Steward-ownership)).
 - **American nonprofits.** Assets given to a charity stay charitable. When Blue Cross of California moved its business into a for-profit company in the 1990s, state regulators made it hand over more than $3.2 billion to two new health foundations. Its first offer had been $100 million ([Community Catalyst, 2004](https://www.communitycatalyst.org/wp-content/uploads/2022/11/conversion_and_preservation_of_charitable_assets_of_blue_cross_and_blue_shield_plans_mar04.pdf)). Notice what happened there, though: the company *did* change form. What the law protected was the value.
 There's one honest difference. The founders of a community interest company, or of Ecosia, chose their lock freely. Here the lock is the condition of a public loan. Founders still choose it, since nobody has to borrow from the bank, but they choose it as part of a deal.
 **And the failure the lock prevents is real.** Britain's building societies were member-owned mortgage lenders. From 1989 on, several of the biggest (Abbey National, Halifax, Northern Rock, Bradford & Bingley and others) turned themselves into banks. They won their members' votes by paying out windfalls from reserves that earlier generations had built, and speculators opened small accounts just to collect. Every converted society ended up swallowed by a bigger bank or failed ([Co-operative News, 2014](https://www.thenews.coop/big-bang-demutualisation-building-societies-failed/)). Northern Rock, a building society until 1997, suffered Britain's first bank run in well over a century in 2007 and was nationalized the next year ([Wikipedia](https://en.wikipedia.org/wiki/Northern_Rock)). Those failures had many causes, and mutuals can fail too. But the windfall votes show exactly the incentive the lock removes: current members cashing out what their predecessors built.
 ## How the lock is made to hold
 A lock written only into a co-op's own rules can be voted away by its members. A lock written only into federal law can be repealed by Congress. So it's built in layers, and each one is meant to hold if another fails.
 1. **A lock share.** Each locked co-op issues one special share to an independent **lock-holder**. The share pays nothing. It votes on only four things: a sale or merger, a change to the lock clauses, a payout on dissolution, and a sale of a large part of the business (below). On those, it has a veto. It **can't approve** a sale to a conventional buyer, because nobody can. And it **must approve** anything that follows the lock, such as a merger with another locked co-op, so it can't hold good deals hostage. A refusal can be challenged in court. State corporate law already allows restrictions of this kind. Delaware, for example, lets a company require consent before its shares change hands, or bar transfers to designated kinds of buyers, as long as the restriction isn't "manifestly unreasonable" ([Delaware Code, title 8, § 202](https://delcode.delaware.gov/title8/c001/sc06/index.html)). This is the same device Ecosia uses.
 2. **The co-op's founding documents.** The lock clauses are written into the articles, and they can be changed only with the lock share's consent. (Articles that simply claim they "can never be amended" may not hold up under state law. A required consent is what actually does the work.)
 3. **The law.** The bank's authorizing statute makes the lock a condition of every loan and says it outlasts repayment. It also changes federal bankruptcy law for locked co-ops (see below). Where states are willing, the lock goes into state co-op law too (see [The Constitution](constitution.md)).
 4. **A backstop that follows the money.** If a court or a later Congress ever breaks the lock and a co-op converts or is sold anyway, the reserves and any sale value above members' own account balances still go to the federation fund, not to the members. Italy works this way ([Has This Been Tried?](precedents.md#italys-co-op-funds-coopfond-and-the-marcora-law)). So even if the lock on the firm's form fails, nobody gets a windfall from breaking it.
 **Who holds the lock share.** Each co-op picks its lock-holder from a list of approved ones: its [federation](federation.md), or an independent nonprofit lock trust with its own endowment and a successor named in case it ever shuts down. The rules keep the lock-holder honest:
 - **It can't be a buyer, or benefit from a sale, in any deal it reviews.** If the co-op's federation might absorb the co-op, or would receive its assets on dissolution, a different lock-holder reviews that deal.
 - **It isn't the only one who can enforce the lock.** Any member, any other locked co-op, the bank and the state attorney general can also go to court.
 - **It publishes an annual review** of the co-ops it holds shares in.
 - **It also guards membership.** Beyond its four votes, it has one more job: it takes workers' decisions to opt out of membership and checks each co-op's membership records, so that the membership requirement means something ([When People Don't Stay Long](high-turnover.md)). It has no say over who is hired, fired or paid what.
 **Where the legal risk really is.** Courts are wary of "restraints on alienation": conditions that stop an owner selling property, especially forever ([Cornell Legal Information Institute](https://www.law.cornell.edu/wex/restraint_on_alienation)). For company shares, reasonable restrictions are generally allowed, so that risk is manageable. **The bigger threat is bankruptcy.** Federal bankruptcy law generally overrides contract terms that restrict transferring a bankrupt company's property ([11 U.S.C. § 541(c)(1)](https://www.law.cornell.edu/uscode/text/11/541)). Without a change to that law, a court-run sale could hand a failed co-op's whole business to any bidder, lock or no lock. So the bank's statute has to amend the Bankruptcy Code for locked co-ops. That needs Congress. [When a Locked Co-op Goes Bankrupt](bankruptcy.md) lays out the amendment, modeled on how bankruptcy law already treats charities.
 **What about members who never agreed to it?** Nobody is forced to work at a locked co-op. The lock is explained in writing when someone is hired and again when they become a member. The trade is the same as joining a nonprofit: you get a vote and a share of the profits in a firm you didn't found, and you can't sell it.
 ## When a co-op needs to change hands
 The lock stops a co-op being sold to conventional owners. It doesn't freeze it in place. A co-op can still:
 - **Merge with or be bought by another locked co-op**, including a much bigger one.
 - **Split off part of its business** as a new locked co-op, or sell that part to one.
 - **Sell things it no longer needs**, like old equipment, a building or a patent it doesn't use, to anyone at a fair price. The gain goes to the reserve (see [Investing for the Long Run](the-long-run.md#the-rules)).
 - **Take outside money without giving up control**, on voteless, expiring terms (see [Capital, After](capital.md)).
 - **Get help from its federation**, which can lend to a struggling co-op or help find a co-op buyer (see [The Federation](federation.md)).
 ## Closing the back doors
 A lock on the company is worthless if the business can walk out the side door. These rules are part of the lock itself, so they last as long as it does, not only while a bank loan is outstanding.
 - **Selling the business piece by piece counts as selling it.** If a co-op sells, leases or licenses more than a quarter of its assets or its revenue-producing business within any three years, counted together, that's treated as a sale of the business, and the lock share can veto it. The same goes for the brand, the core technology, or the main customer contracts, whatever their size.
 - **Buying the assets and hiring the workers counts too.** If a buyer of the co-op's assets hires more than a third of its members within two years, the deal is treated as a sale of the whole business after the fact. The buyer owes the federation fund the difference between what it paid and the value of the business as a going concern. People are always free to change jobs. This rule makes a buyer pay full price for a whole business, even if it picks the business up in pieces.
 - **Subsidiaries are covered.** Any company a locked co-op controls is also locked, and its workers are covered by the membership rule. Otherwise a co-op could grow through an ordinary subsidiary and then sell it. That's the pattern behind Mondragon's non-member foreign subsidiaries.
 - **No outside control through the back door.** The limits in [Capital, After](capital.md) (outside claims last at most 15 years, rank behind lenders, and carry no vote) apply forever, not just while a bank loan is outstanding. No investor, lender, supplier or licensee can hold a veto over the co-op's budget, hiring or management. No contract can give one outside party an exclusive claim on most of what the co-op produces for longer than five years.
 ## When a co-op goes bankrupt
 Argentina changed its bankruptcy law in 2011 so that when a firm fails, its workers can form a co-op, keep the business running, and buy it, counting what they're owed toward the price ([Law 26.684, articles 189, 203 bis and 205](https://www.argentina.gob.ar/normativa/nacional/ley-26684-183856/texto)). This model borrows the idea, adapted to American law. The full rules, and the amendment to federal bankruptcy law they need, are in [When a Locked Co-op Goes Bankrupt](bankruptcy.md). In short:
 - **Only co-ops can buy the business whole.** Its own workers (as a new locked co-op), the federation, or any other locked co-op whose members do most of its work can bid. It's sold by open bidding among them. The minimum price is what the assets would bring sold off separately, set by an appraiser the court appoints.
 - **Workers can keep it running while it's sold,** and count the unpaid wages they choose to hand over toward their bid, up to the amounts bankruptcy law already puts first.
 - **No buying back your own failure cheaply.** People who managed the co-op in the two years before it failed can't get bank financing to buy it back.
 - **If no co-op buys it**, the assets are sold off separately to anyone. But no single buyer and its related companies may assemble enough of the pieces to add up to the business.
 - **A reorganization can't hand over control.** If a locked co-op reorganizes in bankruptcy instead of closing, the plan can't give voting shares to anyone but members. Creditors who vote against the plan still get what the business would be worth on the open market.
 **This does cost creditors something.** When only co-ops can bid on the whole business, the price may be lower than an open auction would fetch, and lenders will charge for that risk. Creditors who never chose to lend, like people the co-op injured, are paid the difference from the federation fund. That's part of the lock's price (below).
 ## What the lock costs
 The lock has real costs, and they should be stated plainly.
 - **Fewer buyers means lower prices, and sometimes a breakup.** When a failing co-op finds no co-op buyer, a business that a conventional buyer would have kept running may be sold off in pieces, and its workers lose their jobs. Lenders get back less, and they'll charge for it. The pilot publishes the bank's recovery rate on failed loans (see [The Pilot, in Numbers](pilot-spec.md#what-gets-measured)), so this cost shows up in the numbers.
 - **While the sector is small, so is the pool of co-op buyers.**
 - **Members can't take the firm's value with them.** That's the point of the lock, and it's also the heart of [the founder problem](founder-problem.md).
 - **"Forever" is a long time.** Critics on the right argue that a permanent lock, bought with one loan, binds generations who never chose it. Italy takes a softer approach: a co-op can become an ordinary company, but its accumulated reserves go to the co-op movement's fund, not to the members. Whether this model should follow Italy is an open question (see [Open Problems](open-problems.md)).
@@ -2,7 +2,7 @@
 title: Investing for the Long Run
 section: The Co-op
 order: 27
-summary: Why economists expected worker co-ops to underinvest, what the evidence actually shows, and the rules that keep members who are about to leave from starving the firm.
+summary: Why economists expected worker co-ops to underinvest, what the evidence actually shows, and the rules that keep members who are about to leave from starving the firm, running it down or wasting its reserve.
 ---
 # Investing for the Long Run
@@ -44,9 +44,9 @@ The retiring plywood workers weren't doing anything wrong. They were making a fr
 The horizon problem bites when the members voting today pay for an investment whose benefits arrive after they leave. How much it bites depends on where the money comes from.
-**1. The reserve.** At least 30% of every year's profit goes into the co-op's permanent reserve (see [Member Capital Accounts](capital-accounts.md#where-each-years-profit-goes)). No current member can ever take that money home, so spending it on a long-lived investment doesn't take anything out of our machinist's pocket. The reserve is money that already belongs to the co-op's future, and it gets spent on the co-op's future.
+**1. The reserve.** At least 30% of every year's profit goes into the co-op's permanent reserve (see [Member Capital Accounts](capital-accounts.md#where-each-years-profit-goes)). No current member can ever take that money home, so paying for the line this way doesn't cut our machinist's share this year. (The line's cost still counts against profit a little each year, as point 3 explains.) The reserve is money that already belongs to the co-op's future, and it gets spent on the co-op's future.
-**2. Members' accounts.** Money members leave in their [capital accounts](capital-accounts.md) isn't lost when they leave. It's paid back to them with interest. So if the co-op keeps more of this year's profit in members' accounts to pay for the new line, the machinist gets her money back when she retires. Her real cost is the wait, and the risk that the co-op fails.
+**2. Members' accounts.** Money members leave in their [capital accounts](capital-accounts.md) isn't lost when they leave. It's paid back to them with interest. So if the co-op keeps more of this year's profit in members' accounts to pay for the new line, the machinist gets her money back, by default five years later, whether or not she's still there. Her real cost is the wait, and the risk that the co-op fails. Five years is shorter than most machines last, so for long-lived investments this helps less than it would if accounts were held until members left. Federal pension law is why they aren't ([Member Capital Accounts](capital-accounts.md#why-not-pay-it-out-when-you-leave)).
 **3. Spreading the cost over time.** A business doesn't count the whole price of a machine as a cost in the year it's bought. It spreads the cost over the machine's working life. A $2 million line that lasts 20 years counts as $100,000 of cost a year. This is called *depreciation*, and it's how ordinary accounting already works. The profit split is based on profit after depreciation, so the machinist isn't charged for the years after she leaves. The bank does the same with repayment: loans for buildings and long-lived equipment are paid back over the asset's working life, up to 25 years for real estate, the same limit the SBA's main loan program uses ([SBA, types of 7(a) loans](https://www.sba.gov/partners/lenders/7a-loan-program/types-7a-loans)).
@@ -65,10 +65,11 @@ That leaves four ways the horizon problem can still get in.
 **1. The reserve's share applies to pay above the going rate, too.** This isn't a cap on wages. Members can pay themselves whatever they decide. But the reserve takes its 30% of everything members receive above the going rate, whether it's called profit or pay.
- **The going rate for each job** is the higher of two numbers: the median pay for that occupation in the co-op's own metro area, from the government's wage survey (the Bureau of Labor Statistics' [Occupational Employment and Wage Statistics](https://www.bls.gov/oes/)), or the local living wage for a full-time worker supporting one child, from [MIT's Living Wage Calculator](https://livingwage.mit.edu/). The living-wage floor matters. In home care the median wage can be close to poverty pay, and a co-op that raises its aides to a living wage shouldn't owe anything for doing it.
+- **The going rate for each job** is the higher of two numbers: the median pay for that occupation in the co-op's own metro area, from the government's wage survey (the Bureau of Labor Statistics' [Occupational Employment and Wage Statistics](https://www.bls.gov/oes/)), or the local living wage for a single adult working full time, from [MIT's Living Wage Calculator](https://livingwage.mit.edu/). Both are measured per hour, so part-time work and consultants are compared fairly. The living-wage floor matters. In home care the median wage can be close to poverty pay, and a co-op that raises its aides to a living wage shouldn't owe anything for doing it.
- **It's checked job by job.** Paying one group below the going rate doesn't make room to pay another group above it. The co-op's auditor assigns each job its occupation code from what the person actually does, not from their title.
+- **Why a single adult's living wage.** In Salt Lake City in 2026, MIT puts the living wage at $24.64 an hour for a single adult and $41.55 for one adult supporting a child. An earlier version of this rule let pay up to one and a half times the second figure, about $130,000 a year, count as "raising the bottom." That would have let a co-op pay every cleaner six figures without the reserve getting anything. The single-adult figure, about $51,000 a year there, is still well above what most aides earn. Paying more than that is allowed. The reserve just takes its 30% of the difference.
- **It counts total pay.** Employer retirement contributions above 6% of pay, bonuses, and severance beyond the co-op's standard formula all count as pay. Co-ops can't promise pensions or retiree benefits they don't pay for in full each year.
+- **It's checked job by job.** Paying one group below the going rate doesn't make room to pay another group above it. An outside reviewer, the co-op's auditor or the bank's, assigns each person the occupation code for the work they spend most of their hours on, not their title, and the codes are shown to members next to each job. Where the survey has no figure for the metro area, the state figure is used, then the national one.
- **How it's settled.** Thirty percent of the excess is moved from members' [capital accounts](capital-accounts.md) into the reserve. No new cash has to be found, because the members already took that money as pay. If a member's account can't cover it, the rest comes out of their future account credits.
+- **It counts total pay.** Employer retirement contributions above 6% of pay, bonuses, severance beyond two weeks' pay per year worked (up to 26 weeks), and perks like a car, housing or loans to members, valued at cost, all count as pay. So does pay to non-members and to people working through a related company, and the value of any deal with a member or their family on better than market terms, like buying from a relative's firm above the market price. Co-ops can't promise pensions or retiree benefits they don't pay for in full each year.
 - **How it's settled.** Thirty percent of the excess goes to the reserve, first out of the member's profit share for that year, before it's paid or credited, and then out of their [capital account](capital-accounts.md). No new cash has to be found, because the members already took that money as pay. Taking it from this year's share first avoids a second round of tax on money already credited ([How a Locked Co-op Is Taxed](taxes.md#capital-accounts)). If that isn't enough, the rest comes out of their future account credits, or out of their payout when they leave. For pay to non-members, it comes out of that year's members' profit pool.
 - **There's a precedent.** US tax law already treats salaries that aren't "reasonable" as disguised profit ([26 U.S.C. § 162(a)(1)](https://www.law.cornell.edu/uscode/text/26/162)), so owners can't dodge tax by calling profit pay. This rule stops the same disguise being used to dodge the reserve. The tax test is judged case by case. This one is a fixed formula, so it's cruder but much harder to argue about.
 **2. Gains from selling assets go to the reserve.** If a co-op sells a building, equipment, a brand or a patent for more than its value on the books, the whole gain goes to the reserve, not into the profit split. A sale to an insider, or a sale-and-lease-back, is checked like any [insider deal](pilot-safeguards.md#the-hidden-boss).
@@ -76,15 +77,69 @@ That leaves four ways the horizon problem can still get in.
 **3. Development projects can be spread out, like machines.** A co-op can designate a specific development project *before* it starts spending on it: designing a new product or a better production process, or building software. For the profit split only, its cost is then spread over up to five years, the same way a machine's is.
 - **Only real development qualifies.** It has to meet the test international accounting standards already use to decide when development creates a real asset: it's technically doable, the co-op intends to finish it and can, and it's likely to earn money ([IAS 38](https://www.ifrs.org/issued-standards/list-of-standards/ias-38-intangible-assets/)). Those standards specifically exclude training, advertising and start-up costs, and so does this rule. Those stay costs of the year they're spent.
- **The people who chose it carry the risk.** If a project is abandoned or written down within five years, the cost that hasn't yet been charged comes out of the capital accounts of the people who were members when it was designated, including former members whose payouts haven't been made yet. Payouts take up to five years anyway, so the money is usually still there. That makes the rule useless for pushing costs onto the next group of workers.
+- **The people who chose it carry the risk.** If a project is abandoned or written down within five years, the cost that hasn't yet been charged comes out of the capital accounts of the people who were members when it was designated, including former members whose payouts haven't been made yet. Each credit waits three to seven years before it's paid, so much of the money is usually still there. That makes the rule useless for pushing costs onto the next group of workers.
 - **Limits.** The total cost still waiting to be charged can't exceed half of the co-op's average profit over the last three years, measured before any spreading. Only co-ops with an independent audit can use the rule, and the auditor checks each open project every year.
 - **It only changes how costs are divided between this year's members and future ones.** It doesn't touch the co-op's tax return or its reports to the bank. The co-op publishes both numbers side by side.
 **4. Accounts earn a fair rate while they're at risk.** A current member's account earns the one-year Treasury rate plus two percentage points, credited in years the co-op makes a profit. In a loss year it earns the plain Treasury rate. Money in a current member's account is at risk: it shares in the co-op's losses and ranks behind its lenders. Paying only a risk-free rate on it would push every member to take cash instead. **Once a member leaves, the balance earns the plain Treasury rate.** It no longer shares in losses, so it's no longer at risk, and nobody should collect a premium from the work of people they no longer work alongside. For comparison, Italian law lets co-ops pay members up to 2.5 points above the rate on its postal savings bonds on the capital they've put in (Lomuscio and Tortia, 2023), and Mondragon paid 6% plus an adjustment for inflation (Morris, 1992). The details are on the [capital accounts page](capital-accounts.md#how-the-account-grows).
 **5. The reserve doesn't pay for high pay in a loss year.** Mondragon calls its members' pay *anticipos*, advances on profits ([Morris, 1992](https://www.ilsr.org/wp-content/uploads/2013/03/mondragon-3.pdf)). This model treats the part of pay above the going rate the same way: as an advance against profit that hasn't been earned yet.
 - **If the year ends in a loss,** the part of the loss up to the pay above the going rate, in that year and the year before, is charged to the people who got that pay, in proportion to how much each got. It comes out of their [capital accounts](capital-accounts.md), and out of their payouts if they've left since. The 30% rule 1 already moved from their accounts counts toward it, so nobody pays twice. The rest of the loss is shared as usual.
 - **An example.** A co-op loses $50,000. Its managers were paid $30,000 above the going rate that year, and rule 1 already moved $9,000 of that into the reserve. The managers' accounts are charged $21,000 more. The other $20,000 of the loss is shared between the reserve and all members' accounts in the usual way.
 - **What their accounts can't cover** comes out of their future profit shares, above the cash they need for tax, and nobody's above-going-rate pay can rise until it's repaid. After three years, anything still owed is written off.
 - **Pay above the going rate to non-members** is charged to all members in proportion to their profit shares, since members chose to pay it. Members whose household income is under twice the poverty line are left out, and so is the insured slice of anyone's account.
 - **It never touches pay already earned.** Wages and bonuses already paid or earned stay paid. The charge falls on savings in the co-op, not paychecks.
 Without this rule, members could vote themselves high pay, run the co-op at a loss, and let the losses eat the reserve once their own accounts ran dry. That would be withdrawing the reserve by another name, which [the lock](the-lock.md) forbids. The cost is real too. In an honest bad year, the best-paid people lose some savings, and some may leave.
 ## When members stop investing, or invest badly
 The horizon problem has two mirror images. Members who are leaving soon might let the co-op run down. And because the reserve can never be paid out, members might spend it on expansion that doesn't pay.
 ### Running it down
 Picture the worst case: a co-op whose members are mostly near retirement. What could they gain by letting it run down?
 - **Pay can't drain the reserve** (rules 1 and 5), **and neither can selling off assets** (rule 2).
 - **Closing doesn't pay.** If the co-op dissolves, members get their own account balances, which they'd get anyway, and everything else goes to the [federation fund](federation.md) ([The Lock](the-lock.md)). Nobody gets a windfall from shutting a working firm.
 - **The co-op can stop hiring and shrink as people leave.** But workers it does hire join after probation, and members must do at least three-quarters of the hours ([When People Don't Stay Long](high-turnover.md)). It can't replace its members with cheaper employees.
 That still leaves two real ways to run it down, and both come from how accounting works.
 - **Skipped upkeep.** Repairs count as a cost in the year they're done, so skipping them raises this year's profit, and members share it.
 - **Machines that are "paid for."** Accounting spreads a machine's cost over its expected life, its *depreciation*. Once that time is up, the machine stops counting as a cost, even if it's still running. If nobody replaces it, profit looks higher every year, and members split the difference. That's not savings. It's the machine wearing out.
 **6. Worn-out equipment keeps being charged.** For the profit split only, buildings and equipment that are fully written off but still in use keep being charged at their last yearly rate, adjusted for inflation. That money goes to the reserve, not the split. So a co-op running on old machines builds up the money to replace them, instead of paying it out. Co-ops whose buildings and equipment are worth less than a tenth of their yearly revenue, like most service firms, can skip this.
 There's no fair way to set how much every business should spend on upkeep, so this model doesn't try. Instead there's a warning light:
 - **Every year, the co-op shows members how much it spent on new buildings and equipment**, including new leases, next to how much its existing ones wore out that year, adjusted for inflation.
 - **If spending stays below wear for three years running, an independent inspector reports** on the condition of the main buildings and equipment. The lock-holder picks the inspector and the co-op pays. The report goes to every member, and to the bank if it's still owed money. The first five years after a buyout or conversion don't count, because buying a business makes its old equipment look like it's wearing out fast.
 - **A co-op that's shrinking on purpose,** because its market is, says so in a written plan its members vote on. That's a warning light, not a spending order.
 ### Spending it badly
 Critics worry that money members can never take home will feel free, and get wasted on expansion. Fagor, Mondragon's appliance maker, expanded across Europe and beyond, with plants in Poland, France, Morocco and China, much of it on borrowed money. Then Spain's housing crash took away its main market, and it went bankrupt in 2013.
 The danger is real, but reserve money isn't free to members.
 - **It earns money when it's not spent.** Reserve money that isn't used earns interest, and members share in that interest. Spending it on a project that earns less makes their share smaller. They only get about 60% of that interest, so it's cheaper to them than it should be. It isn't free.
 - **Failures come partly out of members' own accounts.** When a project fails, its value on the books is cut, and that counts as a loss. Losses are shared between the reserve and members' accounts in the same proportions as profit ([Member Capital Accounts](capital-accounts.md#how-the-account-grows)). The federation's share doesn't take losses, so members pay about 60 of every 90 dollars, two thirds. That holds only while they're still there, and only up to what their accounts hold, which is capped at a year's pay.
 **Fagor wasn't mainly a reserve problem.** It owed about €800 million (about $1.1 billion) when it filed for bankruptcy ([The Local, 2013](https://www.thelocal.es/20131114/major-manufacturer-fagor-files-for-bankruptcy)). A study based on 44 interviews found that Fagor kept units losing millions of euros a year open well before the 2008 crisis. Its elected board often couldn't follow the business plans managers brought it, so it approved them and fired the managers when they failed ([Basterretxea, Cornforth and Heras-Saizarbitoria, 2022](https://journals.sagepub.com/doi/abs/10.1177/0143831X19899474), summarized by the authors in [GEO](https://geo.coop/articles/failure-cooperative-governance)). The Mondragon group had already put €70 million into Fagor from its shared fund, and other co-ops had lent more. In October 2013, when Fagor asked for €170 million more, the group's council refused unanimously, saying the money "would not ensure its business future" ([GEO, 2013](https://geo.coop/story/major-mondragon-co-operative-faltering)).
 The risks that remain are the ones Fagor shows: big bets that members can't judge, losses that show up after the people who voted have left, and help from other co-ops that keeps a failing business going. So:
 - **A second opinion on big commitments.** Some commitments need an independent written opinion before members vote: a single investment, a purchase of another business, or borrowing, including leases and guarantees, bigger than a quarter of the co-op's own capital (its reserve plus members' accounts) or $250,000, whichever is larger. Related commitments within two years are added together. The lock-holder picks the adviser from an approved list, and the co-op pays. A lender to the project can't give the opinion. The opinion comes with a one-page plain summary, including what the plan means for members' jobs, and there's a members' meeting to ask questions before the vote. It's advice, not a veto. The co-op publishes it with the result of the vote, and three years later reports how the project did against the plan. Replacing worn-out equipment like for like, and loans the bank has already checked, don't need it. [Spin-offs](growth.md) get a similar opinion at a lower threshold.
 - **Losing parts of the business are visible.** Where a co-op has separate lines of business, each one reports its own results to members every year ([Does Sharing the Profit Mean Less Effort?](free-riding.md#small-teams-open-books)). A line losing money for years can't hide inside the total.
 - **A board that can follow the plans.** The federation offers training in reading the accounts, on paid time and open to every member, not just the board. The standard bylaws let members elect outside directors, from other co-ops or with business experience, but never more than a quarter of the board. The members choose them and can remove them.
 - **Limits on propping up a firm, decided in advance.** The [federation's fund](federation.md) helps a co-op through a bad year. Help to keep a firm going comes with a recovery plan and a limit set before any crisis, and cuts to members' pay or jobs in that plan need the members' vote. Help for the *workers*, like finding them jobs in other co-ops if the firm closes, has no such limit. Mondragon kept supporting Fagor and then said no. It's better to agree on where the line is before anyone's firm is on the wrong side of it.
 ## What's still open
- **The end game.** A co-op whose members are mostly close to retirement and not being replaced could let its equipment wear out. The reserve can't be taken, and the rules above catch most of the ways to pay it out. But nothing forces a co-op to *maintain* what it has once its bank loan is repaid.
+- **Upkeep.** Nothing forces a co-op to maintain what it has. The warning light shows when upkeep falls behind, but members can still ignore it.
- **Too much investment, not too little.** Reserve money can't be paid out, so there's a risk it gets spent on expansion that doesn't pay. Fagor, Mondragon's appliance maker, expanded across Europe and China, mostly on borrowed money, including buying the French appliance maker Brandt in 2005. Then the Spanish housing crash took away its main market, and it went bankrupt in 2013 ([Wikipedia](https://en.wikipedia.org/wiki/Fagor)). Outside a bank loan, nothing here tests whether a big project is worth it.
+- **Late failures.** A big project that fails after the members who chose it have left is paid for by the people who came after. The second opinion and the three-year report make bad bets less likely and more visible. They don't move the cost back to the people who made them.
 - **Deals with insiders after the loan.** The check on deals with insiders is a condition of the bank's loan ([The Hidden Boss](pilot-safeguards.md#the-hidden-boss)). Rule 1 now counts a sweetheart deal with a member as pay, but who checks for them once the loan is repaid isn't settled.
 - **Whether 30% is enough.** Italy requires 30%. Mondragon found 20% too low and moved to 50%. This model uses 30% as a minimum that each co-op can raise. [The pilot](pilot-spec.md#what-gets-measured) measures investment per worker, and the return it earns, against matched conventional firms. So if co-ops invest too little, or waste what they invest, it will show.
- **Is the account rate right?** Two points above Treasury is well below what investors expect from a small business, so members may still prefer cash. Paying the co-op's own return on its assets instead would reward good investment directly, but it would also make the account more volatile. Which is better is unsettled.
+- **Is the account rate right?** Two points above Treasury is well below what investors expect from a small business, so members may still prefer cash. Paying the co-op's own return on its assets instead would reward good investment directly, but it would also make the account more volatile. And lower-income members, who can take their whole share as cash, don't get the two points at all. That's fair only if the two points are a fair price for the risk the account carries, not a bonus. Which is better is unsettled.
@@ -15,4 +15,4 @@ The bank is an experiment, so it runs like one.
 [The Pilot, in Numbers](pilot-spec.md) spells all of this out: the exact measures, the comparison group, the pass and fail thresholds, and an emergency stop.
-**What the test can prove, and what it can't.** At pilot scale, this tests *business viability*: can co-ops compete, survive, and repay market-rate debt? It does **not** test the labor-market effect, meaning the idea that as co-ops grow, conventional firms have to treat workers better or lose them. That effect is real in principle, but it needs a co-op sector big enough to move wages at the margin. Mondragon employs tens of thousands of people and hasn't reshaped Spanish employment practice. The labor-market effect is the long-run payoff of success, not something the pilot can claim.
+**What the test can prove, and what it can't.** At pilot scale, this tests *business viability*: can co-ops compete, survive, and repay market-rate debt? It does **not** test the labor-market effect, meaning the idea that as co-ops grow, conventional firms have to treat workers better or lose them. That effect is real in principle, but it needs a co-op sector big enough to move wages at the margin. Mondragon employs tens of thousands of people and hasn't reshaped Spanish employment practice. The labor-market effect is the long-run payoff of success, not something the pilot can claim. [After a Pass: How Big, How Fast](scale.md) works through how big the sector would need to get, and how the effect could be tested in a few local markets once it grows.
@@ -13,6 +13,6 @@ There is *personal property*: your house, your car, your savings, your tools. Th
 Then there is *productive capital*: a perpetual, tradeable claim on the output of a thousand people you will never meet. This is not the same kind of right. It has been wearing the same word by accident, and the accident does political work for the people who benefit from it.
-The dividing line: **it stops being a tool and becomes capital when it earns you a claim on other people's labor that you don't work alongside.** The plumber's van is not extracting from anyone. TPG's stake in Conservice is.
+The dividing line: **it stops being a tool and becomes capital when it earns you a claim on other people's labor that you don't work alongside.** The plumber's van is not extracting from anyone. TPG's stake in Conservice is. (What that company would look like as a co-op is worked through in [What If Conservice Had Been a Co-op?](conservice.md).)
 What follows from the thesis is not "therefore the state may take that capital." It is something narrower and harder to argue with: **therefore there should be firms where that claim never forms in the first place, and nothing in law or finance should stop people from building them.**
@@ -0,0 +1,112 @@
 ---
 title: Co-ops or Their Founders?
 section: Growing the Sector
 order: 65
 summary: If the pilot fails, the first question will be whether co-ops failed or the people who started them had less going for them, so founders on both sides are measured from government records and the verdict has to say how much that explains.
 ---
 # Co-ops or Their Founders?
 [The Founder Problem](founder-problem.md) says the lock costs a successful founder most of what they'd get from selling the business. So the strongest founders may go conventional, and the bank would be lending to the ones who were left. If the pilot then fails, nobody will know whether co-ops failed or the people who started them did.
 The pilot can't stop that from happening. It can make sure the answer isn't a matter of opinion. This page is how.
 ## Why it's worth measuring
 The worry isn't just theory.
 - **In equal-sharing organizations, the best-paid people leave most.** In Uruguay, co-op members paid above their co-op's median were about 3.7 times as likely to quit as members paid below it, and the gap was smaller in co-ops that paid more unequally ([Burdín, *Economic Journal*, 2016](https://doi.org/10.1111/ecoj.12272); [free copy](https://gwern.net/doc/economics/2016-burdin.pdf)). In Israel's kibbutzim, which shared income equally, members with more education and more skilled jobs were the most likely to leave during a financial crisis in the late 1980s ([Abramitzky, *Quarterly Journal of Economics*, 2008](https://doi.org/10.1162/qjec.2008.123.3.1111); [free copy](https://ranabr.people.stanford.edu/sites/g/files/sbiybj26066/files/media/file/abramitzky_qje_2008.pdf)). If talented people walk out of equal-sharing firms, some will also never walk in.
 - **Founders who believe in it stay.** The same Uruguayan study found founding members were less likely to quit, and the best-paid founders much less so than other best-paid members. That's the kind of founder [the founder page](founder-problem.md#the-honest-bottom-line) is betting on.
 - **A founder's background predicts how the business does.** Using Census records that link founders to their past jobs, one study found that founders with three or more years in their start-up's industry were about twice as likely to build one of the very fastest-growing firms (the top 1 in 1,000) as founders with no experience in it ([Azoulay, Jones, Kim and Miranda, NBER working paper 2018, published 2020](https://www.nber.org/papers/w24489)).
 - **That background isn't handed out fairly.** A study of why Black-owned businesses did worse than white-owned ones found that a large part of the gap came from Black owners having had less chance to work in a family business, or in a business like the one they started, first ([Fairlie and Robb, 2004](https://docs.iza.org/dp1292.pdf)). So "less experience" often means "fewer chances," not "less able." That shapes how the results are worded below.
 It could also go the other way. The bank screens every plan, and co-ops always have at least three founders, so co-op founders could turn out to have *more* going for them than the firms they're compared with. Then a pass would flatter co-ops. The measurement below catches either.
 ## Who counts as a founder
 The same rule on both sides: the co-ops and the matched conventional firms that got SBA loans ([Who co-ops are compared against](pilot-spec.md#who-co-ops-are-compared-against)).
 - **A founder is someone who owned part of the business at the start and did real work in it.** For a co-op, that's a founding member named in the loan application. For an SBA firm, it's an owner of 20% or more, since those are the owners the SBA names on the loan. On both sides, they count only if payroll records show them working at least a set number of hours in the first two years. Someone added to the application for their résumé, who never works there, doesn't count, and the report lists how many such people there were.
 - **The two sides aren't the same in one way.** SBA owners personally guarantee the loan. Co-op members don't ([The Pilot, in Numbers](pilot-spec.md#loan-terms)). So the founders on the two sides didn't carry the same risk, and the report says so.
 - **Team size is handled openly.** Co-ops have three or more founders; most SBA firms have one or two owners at 20%. So the team's average is weighted by hours worked, and the "strongest founder" is compared only between teams of the same size, because the best of five people will usually beat the best of two just by numbers. The report says how many co-ops found matches at each size. SBA firms with nobody at 20% are counted and reported, not quietly dropped. As a second version, the analysis also counts the officers who run each SBA firm.
 ## What gets measured
 Each item comes from government records, so nobody can talk their way up or down.
 - **Past pay.** Pay per quarter actually worked, averaged over the best three of the eight years before founding. Using quarters worked and the best years means a parent who took time out for caregiving isn't marked down for the years away. Missing records count as missing, not as zero. It's ranked two ways, and both are reported:
  - **against everyone of the same age nationally,** which shows whether the co-ops drew people from the lower-paid end of the whole economy;
  - **against people of the same age, state and industry,** which shows whether they drew the lower-paid people *within* their line of work. Co-ops in lower-paid work are part of the design ([Who the Bank Lends To](who-gets-loans.md)), and a home care founder shouldn't count as having less going for them for earning less than an engineer.
 - **Experience in the industry.** Years worked in the co-op's industry before founding.
 - **Owned a business before.** From tax records of past business income.
 - **Age**, as a background fact, not as a score.
 The report also shows the co-ops' industry mix against all new firms, since staying out of whole industries is one way strong founders could avoid co-ops without it showing in any one founder's record.
 ## Getting the data
 **The charter sets it up before the first loan.** It directs the bank, the SBA, the IRS and the Census Bureau to set up the linking, with every approval in hand before lending starts. That matters because research on tax records needs IRS approval project by project, and the Census Bureau's researchers can't count on getting it. Past studies show it can be done: Brown and Earle linked SBA loans to Census business records ([*Journal of Finance*, 2017](https://papers.ssrn.com/abstract=2641184)), and Azoulay and his coauthors linked founders to their past jobs.
 - **Co-op founders consent when they apply,** on the standard IRS form that lets the reviewers see their tax records. So the co-op side can be done even if the Census linking falls through. The records are linked after the loan decision and never go to the people deciding loans.
 - **Comparison founders aren't contacted.** Their records are linked inside the Census Bureau's secure research labs, where names and Social Security numbers are replaced with internal codes. Census law allows the data to be used only for statistics, never against the people in it, including for tax or immigration enforcement. Only totals leave the lab, after the Census Bureau's own privacy review.
 - **State wage records are voluntary.** Years of experience come partly from state unemployment-insurance records, and each state decides whether to share them. Coverage is reported state by state, and results are shown using only the states that took part.
 - **The cost comes from the pilot's budget**, so it counts against the bank in the money test.
 **If the data never arrives,** the verdict says so in one fixed sentence that names which approval was missing and who withheld it. A missing founder analysis never delays or changes the pass or fail.
 ## How it's used
 The analysis is filed in advance, with its code, the same as the rest of [the test](pilot-spec.md#what-gets-measured). It has three steps.
 **1. Who came.** The report shows how co-op founders compare with the comparison founders on each measure, with both pay rankings. It shows the same comparison with first-time owners without much wealth set aside, since the bank seeks them out on purpose. And it shows how the founder measures differ by race, gender and whether founders are recent immigrants, so that a gap caused by who gets paid less for the same work is visible as that.
 **2. How much of the result do founders explain?** The survival comparison is run a second time, also matching on the founders' measures. It isn't a second pass/fail test. The report gives **how far the result moved**, with its range of uncertainty. If co-ops were 30% more likely to fail in the main comparison and 10% more likely against firms with similar founders, founders explain about two-thirds of the gap. If the range around that change is too wide to tell whether it's zero or the whole gap, the report says "too few to tell," and that's decided by a rule filed in advance, not by the reviewers' judgment.
 **3. How big a hidden difference would it take?** Records don't capture everything about a founder. So the report also says how strong a difference the records *can't* see would have to be to change the verdict, using a standard method for this question (the "E-value" of [VanderWeele and Ding, *Annals of Internal Medicine*, 2017](https://doi.org/10.7326/M16-2607)), measured against the pilot's actual pass line, not against "no difference at all." What counts as fragile is fixed in advance: a result is fragile if a hidden difference no stronger than the measured ones already turned out to be would change it.
 ## The verdict still stands
 **The founder analysis doesn't change pass or fail.** The decision still rests on the [main comparison](pilot-spec.md#the-decision-rule).
 That's on purpose. If the lock keeps the strongest founders away, that's part of what the lock *does*. It isn't an excuse for the co-ops, and a bigger program would face it too. And a second, adjusted test that could turn a fail into a pass would be the easiest way to rescue a failing pilot.
 What changes is what the verdict says. It has to use one of these sentences, fixed in advance, and the fast-track bill after a pass has to print the whole sentence:
 | Main comparison | Once founders are matched | The verdict says |
 | --- | --- | --- |
 | Passes | The gap barely moves | Passed. Founders' backgrounds don't explain it. |
 | Passes | Co-ops fall behind | Passed, but co-op founders had more past pay or experience than the comparison firms'. Co-ops with similar founders haven't been shown to hold their own. |
 | Fails | Most of the gap closes | Failed. Under this lock, co-ops drew founders with less past pay or industry experience, and that accounts for most of the gap. That's part of the result, not an excuse for it. |
 | Fails | The gap barely moves | Failed, and founders' backgrounds don't explain it. |
 | Either | Too few to tell | The main result, and "whether founders explain it couldn't be told." |
 **A fail is a fail in every row.** The shutdown happens by itself. Nothing on this page is grounds to restart the bank. Trying again would take a new law and a new pilot held to the same decision rule. What the wording does is keep anyone from quoting one row as another: "co-ops don't work" and "co-ops under this lock don't attract founders with experience" are different findings, and a future design would need to fix different things.
 ## Watching the founders who stay
 Founders who leave early can also sink a co-op. The pilot already publishes how often higher-paid members leave ([Who Sets the Pay](pay.md)). It now also publishes:
 - **how often founders leave** in each of the first five years, against owners of the comparison firms who leave *without* a sale, since co-op founders can't sell their way out. A founder whose hours fall below the set level counts as having left, even if still on the books;
 - **how often the best-paid members leave**, with the comparison firms' best-paid employees as the yardstick;
 - **what founders who leave earn next,** against both the comparison owners and their own pay before founding. Earning more after a co-op could mean the brain drain the Uruguayan study found, or skills learned there. The report can't tell those apart, and says so.
 The yearly audit of rejected applications ([Making It Last](durability.md#rigging-the-result)) also checks whether founders' past pay predicts approval once the business plan's numbers are held fixed. A bank trying to make step 1 look good would show up there.
 ## Asking the ones who didn't come
 Records only cover founders who applied. The ones who went conventional, and the workers who never started anything, are invisible to the bank. So, once, in year 3, a federal statistical agency, not the bank, runs a voluntary survey with confidential answers. It samples new SBA borrowers in the same industries and workers in those industries who haven't started a business, in several languages.
 - **Both deals are described side by side,** including the SBA's personal guarantee and the co-op's smaller downside as well as the lock.
 - **The wording is written by the reviewers, filed at year 0 and tested in advance.** Each person is randomly shown one of two framings, and both results are published, so the wording's effect is visible instead of hidden.
 - **The response rate is published,** with who didn't answer. No names go to the bank.
 A survey answer isn't a decision made with real money, and people say things they wouldn't do. So it's published as background, and nothing in the verdict depends on it.
 ## What this doesn't solve
 - **It measures the founder problem. It doesn't fix it.** If the analysis shows the strongest founders stayed away, the pilot has an answer, not a cure. The cure is in the founder deal ([The Founder Problem](founder-problem.md#the-tools)), and it may not be enough.
 - **Records measure chances as much as ability.** Past pay reflects discrimination, bargaining power and who you know, not only skill. The report breaks the founder gap down by race, gender and immigrant status and uses careful wording, but "less past pay" is still partly "fewer chances."
 - **Records miss people.** Recent immigrants may have little US record. Cash work and some self-employment never show up. The report says how many founders on each side couldn't be matched and shows them separately.
 - **It's a lot of statistics on a small sample.** With about 400 co-ops, "too few to tell" is a likely answer for step 2, and the page says so in advance rather than after.
 - **Worker groups muddy the comparison.** When the founders are ten workers from the same shop, the "strongest founder" is often a lead worker, not an entrepreneur. Those co-ops are reported separately.
 - **It can't see the founders who never considered co-ops.** The survey is the only window on them, and it's a weak one.
@@ -0,0 +1,90 @@
 ---
 title: Who the Bank Lends To
 section: Growing the Sector
 order: 66
 summary: A bank that lends only to co-ops can still drift toward the safest ones, so part of the loan money is set aside for co-ops in lower-paid work, lending is published by group, and the final verdict has to say which kinds of co-ops it covers.
 ---
 # Who the Bank Lends To
 The bank's charter says it lends only to worker co-ops. That stops it from turning into an ordinary bank. It doesn't stop a quieter kind of drift: lending mostly to the co-ops that were always the safest bets, like consultancies and software shops started by people with savings, and seldom to the home care, cleaning and food co-ops where many co-op members work today.
 That drift matters for two reasons. It would make the test less useful, because a pass earned by consultancies says little about the work most people do. And it's the drift the founding plan predicts. A public lender judged on its losses has every reason to fund the safe bets. The plan calls that "risk-aversion under political accountability."
 ## What we know
 - **It has happened here.** The law that created America's co-op bank in 1978 told its board to use its "best efforts" to keep at least 35% of its loans going to co-ops of low-income people. Nothing happened when it missed, and the bank drifted toward borrowers that could have borrowed anywhere ([Has This Been Tried?](precedents.md#americas-co-op-bank-the-national-consumer-cooperative-bank)). Lending to safer borrowers may also be part of why it survived. That's the trade this page has to manage.
 - **It isn't automatic.** A study of rated microfinance lenders in many countries over 11 years found that, across the industry, average loan size didn't grow and lending didn't shift toward cities. But lenders whose costs rose tended to make bigger loans, because small loans cost more to make per dollar lent ([Mersland and Strøm, *World Development*, 2010](https://doi.org/10.1016/j.worlddev.2009.05.006); [free copy](https://zenodo.org/records/16910149)). The pressure to drift is real, and it comes through costs.
 - **The sector may already be moving.** The 2025 survey of US worker co-ops found that the fastest-growing industry was business consulting ([US Federation of Worker Cooperatives, 2025](https://www.usworker.coop/blog/the-2025-state-of-the-sector-report-is-here/)). Only 242 co-ops answered the survey ([survey page](https://www.usworker.coop/census/)), so that's a signal, not a measurement.
 - **Enforced floors exist.** To stay certified, a US community development lender has to direct at least 60% of both the number and the dollar amount of its loans to the low-income places or people it's certified to serve. It's checked every year from loan-by-loan data, with no rounding: 59.9% fails. A lender that misses in one year can still pass on its three-year record ([CDFI Fund](https://www.cdfifund.gov/node/1030631); [Dechert, 2024](https://www.dechert.com/knowledge/onpoint/2024/3/department-of-the-treasury-s-community-development-financial-ins0.html)). Those lenders exist to serve that market, though. This bank exists to run a test, so it copies the idea of a checked, published share, not the 60%.
 ## Two groups, fixed in advance
 Before the first loan, the pilot's filed plan defines two groups the results are reported on. The reviewers, not the bank, decide which group a co-op falls in when it applies.
 - **Co-ops in lower-paid work.** In the co-op's industry, the average wage in its county is below the county's average for all private-sector jobs. The figures come from the federal count of employment and wages (the Quarterly Census of Employment and Wages), which covers nearly every employer, rural counties included. Where the county figure is withheld for privacy, the state figure is used, then the national one, and the report says how often that happened. The industry is the one the co-op registers under for its payroll taxes, so it can be checked against government records.
 - **First-time owners without much wealth.** Most founding members, counted by their hours of work, have never owned a business, and their household wealth is below the median for people their age in the Federal Reserve's household wealth survey. Founders report their wealth in bands, sign it under penalty for false statements, and it's checked against their tax records with their consent. Founders count only if they work at least a set number of hours in the co-op's first year.
 A co-op can be in both groups, one or neither.
 ## Money set aside
 **About a third of the loan money, $90 million, is set aside for co-ops in lower-paid work.** Other co-ops can't borrow it. Nobody waits in line. Co-ops outside the group borrow from the rest of the money, the same as before. That's a first guess, sized so the set-aside could fund a large share of the co-ops at the smaller loans this kind of work usually needs.
 **The standards don't change.** Each loan is still judged on its own numbers by the same filed standards ([Guarding the Pilot](pilot-safeguards.md)), and the limits on any one industry and county still apply. If the set-aside and the 25% cap on one industry ever clash, the cap wins.
 **Unused money goes back, but only after a check.** At the end of year 4, any money not yet lent goes back to the general pool, but only if the reviewers certify two things:
 1. The bank decided applications from lower-paid co-ops as fast as others, measured from a complete application, within a time limit filed in advance.
 2. An extra-large audit of rejected lower-paid applications found that the bank applied its own standards.
 If they can't certify both, the money stays set aside until the lending window closes. The verdict for lower-paid work is then **"not tested,"** not "failed," unless the reviewers show that good applications really were scarce.
 **A shortfall with a clean audit is a finding.** If good applications from lower-paid work don't come even when the money is there and the bank handled them fairly, that's evidence about where co-ops can work. It's reported that way, the same rule the pilot uses when applicants are scarce ([The Pilot, in Numbers](pilot-spec.md#why-about-400-co-ops)).
 **What counts.** Only new money to a co-op counts, and loans to related co-ops are added together, so splitting one loan into pieces can't pad the numbers. If the reviewers later find a co-op was put in the wrong group, its loan is moved to its real group, and the set-aside figures are recalculated. A co-op that misstated its industry on purpose is treated like any other false statement to the bank, under the rules against sham co-ops.
 This isn't a lending target. Nobody at the bank is paid or judged on how much it lends, to any group.
 ## Priced like any other loan
 Market rate means the whole cost of the loan, including the cost of making and servicing it, as a conventional lender would charge ([What "market rate" means](pilot-spec.md#what-market-rate-means)). Small loans cost more to make per dollar, so they carry a higher rate or a fee, as they would anywhere. The yearly rate audit checks that too. The bank can match repayments to a co-op's cash flow, with longer terms or a slow start, as long as the price for the risk stays the same.
 So the set-aside isn't a subsidy, and it can't excuse a result. The money test is judged on the whole loan book, with no adjustment for the set-aside, whichever way it comes out.
 ## Published by group
 Every year the bank publishes, for each group: applications, approvals, rejections, offers the co-op turned down, withdrawals, rates, collateral, loan sizes, time to a decision, and how the loans are doing. It also publishes the same figures by industry, by rural or urban county (using the federal government's standard rural codes), and by the founders' wealth band.
 To protect small businesses, every published table needs at least 10 co-ops in each cell, counting every combination of details shown. Whether individual loans are behind on payments is published only in totals. Loan-by-loan data goes only to vetted researchers under a data-use agreement.
 ## Results by group
 The pilot still passes or fails on the whole portfolio, using the two measures filed in advance ([The decision rule](pilot-spec.md#the-decision-rule)). Adding group results to the decision would make it easier to find one that looks good.
 But the final report gives both measures, survival with fair pay and the bank's money, for each group. Because the groups are much smaller than the whole pilot, the plan files in advance the smallest difference each group could reliably show. For groups of a couple of hundred co-ops, "too few to tell" is the likely answer. When it is, the report says so, with the range of possible results and no single headline number.
 Differences between groups are claimed only if a test of the difference itself, filed in advance, finds one. The verdict says which kinds of co-ops it covers. "Passed, with too few lower-paid co-ops to tell" is a different result from "passed across the board," and nobody gets to quote the first as the second.
 The reviewers, not the bank, work out the bank's return for each group, using a method filed in advance for splitting shared costs. They report it with and without shared overhead, so the split can't be rigged to make one group look expensive.
 If the pilot passes, any larger program's lending to lower-paid work is sized from that group's own result. If that result is "too few to tell," that lending can't grow faster than the rest ([After a Pass](scale.md)).
 ## Treated the same
 The yearly audit of rejected applications ([Making It Last](durability.md#rigging-the-result)) now also looks at the two groups, in three ways.
 - **Same numbers, same answer?** It compares approvals, rates and collateral across the groups for applications with similar numbers, and checks samples of approvals in both groups against the filed standards.
 - **Are the numbers themselves fair?** It checks each part of the bank's scoring, like collateral, credit history and founders' own money, to see whether it counts against a group more than it predicts repayment. Then it publishes whether a different scoring would predict repayment as well with less of that effect.
 - **Is the bar too high?** If approved co-ops in one group repay better than the rest, the bank was demanding too much of that group. The lottery among borderline applicants ([The Pilot, in Numbers](pilot-spec.md#who-co-ops-are-compared-against)) is the cleanest place to check.
 The audit also reports by the founders' gender and race, as the pilot already does, collected separately from the loan file so underwriters don't see it.
 ## What this doesn't solve
 - **It can't make people apply.** The set-aside makes money available. It can't make groups come forward. The [founding lottery](before-launch.md) and sponsors like unions and worker centers do that, and the pilot can only measure how well.
 - **The lower-paid group is wide.** It runs from the lowest-paid work to work just under the average. The bank could meet it mostly at the top. The results are also published by fifths of the local wage scale, so that shows, but nothing requires lending at the bottom.
 - **Market prices aren't neutral.** In home care and cleaning, prices are largely set by whoever buys the work, like Medicaid or a contractor, not by how well the business is run. A co-op that fails there may be failing the price, not the co-op form. Comparing co-ops with conventional firms in the same industry catches some of that, not all.
 - **Industry is a rough stand-in.** A co-op in a low-wage industry can still pay well, and the reverse. Industry is used because it can be checked. The pilot publishes members' actual pay too.
 - **Wealth is hard to check.** Tax records show income, not savings. Some founders will understate their wealth.
 - **The numbers are guesses.** $90 million and year 4 are first guesses. The pilot publishes how much of the set-aside was used, so the next design can do better.
@@ -13,15 +13,19 @@ A worker co-op under this model means two things, and they are not the same thin
 **Profit share ramps with tenure, then caps.** A new member starts at a partial share and grows to a full, equal share over roughly five to ten years. After the cap, everyone's share is identical. The thirty-year lifer and the eight-year veteran split profit the same.
-Why the ramp: it kills the dilution panic. Under flat equal shares, every new hire immediately eats everyone's slice, and cooperatives empirically under-hire for exactly that reason. With a ramp, hiring decisions move toward "does this person grow the pie" during precisely the window when their value is most uncertain.
+Why the ramp: it kills the dilution panic. Under flat equal shares, every new hire immediately eats everyone's slice, and cooperatives empirically under-hire for exactly that reason. With a ramp, hiring decisions move toward "does this person grow the pie" during precisely the window when their value is most uncertain. The ramp only softens the problem, though. How co-ops can grow into lower-margin work without shrinking everyone's share is in [When Growing Means Sharing](growth.md).
-Protected leave (parental, medical, caregiving) counts as tenure, so taking time off to care for someone doesn't set your share back.
+Federal tax law narrows what the ramp can do. Profit shares are counted per hour worked, and the part of a share a new member hasn't reached yet can't go to the other members without being taxed twice. So by default it goes to the co-op's permanent reserve. The ramp still makes new members earn their way to a full share, but it no longer protects everyone else's share from new hires, unless a co-op pays the difference as wages for years of service ([How a Locked Co-op Is Taxed](taxes.md#the-tenure-ramp)).
-Where does the profit share actually go? Part is paid in cash each year, and part builds up in a personal account that's paid out when you leave. See [Member Capital Accounts](capital-accounts.md).
+Protected leave (parental, medical, caregiving) counts as tenure, so taking time off to care for someone doesn't set your share back. So does earlier time at the same co-op: someone who leaves and comes back within a few years picks up where they left off.
 Membership itself comes automatically after a short probation, unless a worker opts out. In jobs like home care, where most people move on within a year or two, that's what keeps a co-op from becoming a club of the few who stay ([When People Don't Stay Long](high-turnover.md)).
 Where does the profit share actually go? Part is paid in cash each year, and part goes into a personal account that pays each year's share back after about five years. See [Member Capital Accounts](capital-accounts.md).
 Why the cap: uncapped tenure weighting builds a gerontocracy of shares and chains people to their first employer. Capped at a career-fraction, people can change companies, move cities, start over, and still reach a full share with plenty of career left.
- **Base salaries still exist**, set by the company. A brain surgeon won't work somewhere without a high salary, and shouldn't have to. Hard jobs and in-demand jobs still pay more. The incentive to do difficult work survives intact. Pay isn't capped, but raising salaries doesn't let members skip the co-op's reserve: it takes its share of pay above the going rate too ([Investing for the Long Run](the-long-run.md)).
+- **Base salaries still exist**, set by the company. A brain surgeon won't work somewhere without a high salary, and shouldn't have to. Hard jobs and in-demand jobs still pay more. The incentive to do difficult work survives intact. Pay isn't capped, but raising salaries doesn't let members skip the co-op's reserve: it takes its share of pay above the going rate too ([Investing for the Long Run](the-long-run.md)). How pay gets set, in the open and by the right people, is in [Who Sets the Pay](pay.md).
- **Governance is up to each company.** Workers pass bylaws deciding what requires a vote and what doesn't. Some will use direct democracy, some representative systems, some will delegate almost everything to management they hire and can fire. "Workers vote on every decision" is a strawman and always was.
+- **Governance is up to each company.** Workers pass bylaws deciding what requires a vote and what doesn't. Some will use direct democracy, some representative systems, some will delegate almost everything to management they hire and can fire. "Workers vote on every decision" is a strawman and always was. Why anyone works hard when the profit is split so many ways, and what happens when someone doesn't, is in [Does Sharing the Profit Mean Less Effort?](free-riding.md).
-The concrete case: the average employee where I work generates roughly $150,000/year in profit after all costs. That money currently flows upward to private equity. A firm with those economics, built as a co-op, sends it to the people who made it.
+The concrete case: the average employee where I work generates roughly $150,000/year in profit after all costs. That money currently flows upward to private equity. A firm with those economics, built as a co-op, sends it to the people who made it. The numbers, using public figures, are in [What If Conservice Had Been a Co-op?](conservice.md).
`@@ -15,4 +15,4 @@ The bank is an experiment, so it runs like one.`

	`[The Pilot, in Numbers](pilot-spec.md) spells all of this out: the exact measures, the comparison group, the pass and fail thresholds, and an emergency stop.`	`[The Pilot, in Numbers](pilot-spec.md) spells all of this out: the exact measures, the comparison group, the pass and fail thresholds, and an emergency stop.`

	What the test can prove, and what it can't. At pilot scale, this tests business viability: can co-ops compete, survive, and repay market-rate debt? It does not test the labor-market effect, meaning the idea that as co-ops grow, conventional firms have to treat workers better or lose them. That effect is real in principle, but it needs a co-op sector big enough to move wages at the margin. Mondragon employs tens of thousands of people and hasn't reshaped Spanish employment practice. The labor-market effect is the long-run payoff of success, not something the pilot can claim.	What the test can prove, and what it can't. At pilot scale, this tests business viability: can co-ops compete, survive, and repay market-rate debt? It does not test the labor-market effect, meaning the idea that as co-ops grow, conventional firms have to treat workers better or lose them. That effect is real in principle, but it needs a co-op sector big enough to move wages at the margin. Mondragon employs tens of thousands of people and hasn't reshaped Spanish employment practice. The labor-market effect is the long-run payoff of success, not something the pilot can claim. [After a Pass: How Big, How Fast](scale.md) works through how big the sector would need to get, and how the effect could be tested in a few local markets once it grows.