From 16d42cc0ef54bf585832a1c141081aef5a9e71fe Mon Sep 17 00:00:00 2001 From: JoshHeaps Date: Fri, 25 Sep 2026 22:12:25 -0600 Subject: [PATCH] Socialism: count what buyout help really costs, and make sellers pay for their own checks Co-Authored-By: Claude Opus 5.5 Claude-Session: https://claude.ai/code/session_01QWPs69B8nQZjtPEUXMKzZx --- JoshHeaps.Net/Content/Socialism/buyouts.md | 34 ++++++++++++++++--- .../Content/Socialism/open-problems.md | 2 +- 2 files changed, 30 insertions(+), 6 deletions(-) diff --git a/JoshHeaps.Net/Content/Socialism/buyouts.md b/JoshHeaps.Net/Content/Socialism/buyouts.md index b623bc0..1a7711c 100644 --- a/JoshHeaps.Net/Content/Socialism/buyouts.md +++ b/JoshHeaps.Net/Content/Socialism/buyouts.md @@ -55,11 +55,11 @@ So should [the bank](the-bank.md) lend for these sales? This page's answer is ** - **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. +- **The seller can challenge it.** The seller can order a second appraisal from the panel, at the seller's own cost, so asking again isn't free. If the two are within 10% of each other, their average is the final figure. If they're further apart, a third panel appraiser settles it, and that figure is final. The third appraisal is paid for by whichever side's appraisal it lands further from, and if it lands nearer the seller's, the bank also pays back the seller's second appraisal. 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 workers get their own adviser**, chosen by the workers (or their union, if they have one) from a list the bank approves, and paid a flat fee from the buyout track's own budget, the same whether or not the sale goes through. The workers can replace the adviser by majority vote. Each adviser's record, how many of their deals closed and how those firms fared, is published, and advisers aren't handed more work for closing more deals. 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 @@ -86,7 +86,7 @@ So should [the bank](the-bank.md) lend for these sales? This page's answer is ** - **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. +- **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. Every converted firm gets the standard help new co-ops get, including governance training for its elected leaders. Half, chosen by lottery, also get the intensive help that [the support lottery](pilot-spec.md#the-support-lottery) tests. Both are 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 @@ -101,7 +101,7 @@ Buyouts would make the pilot's main result look better than it deserves. A busin 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 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. $12 million of it pays for the workers' advisers, the checks on deals that don't close and the help after a sale ([What the help costs](#what-the-help-costs)). 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, including the advisers' budget, the appraisals and the track's share of running the bank. Its losses can't be clearly higher than the loss rate the bank publishes before its first buyout loan ([below](#who-buyouts-are-compared-against)). Deals the bank made alone count, and so do loans restructured to keep them alive, under the same rules as the startup test ([Keeping zombies alive](pilot-safeguards.md#keeping-zombies-alive)). @@ -144,9 +144,33 @@ Neither gets around the SBA's rule. An outside guarantee fund doesn't meet it ei These programs show that public help for worker buyouts already exists, state by state and in pieces. What the track can show is whether one lender, with the same rules everywhere, reaches good deals the patchwork doesn't. +### What the help costs + +An earlier version of this page set aside $5 million for help. Counted properly, that was too little. + +The best public benchmark is the ESOP sale. The National Center for Employee Ownership says setting one up costs "a low end of $200,000 to $500,000 for most deals," and that an outside trustee adds costs "in the mid-five figures per year" ([NCEO](https://www.nceo.org/employee-ownership-faq/how-much-does-setting-up-an-esop-cost)). The sales here are smaller than most ESOP deals, around $2.5 million, and a co-op doesn't need an ESOP's yearly trustee or yearly valuation. So this model's figures sit below NCEO's. They're its own estimates, not NCEO's: + +- **The appraisal**, $15,000 to $35,000. NCEO puts a first ESOP appraisal in the "low five figures and up." +- **The profit check**, the outside accountant's restatement of profits, $10,000 to $30,000. No public price was found for firms this small, so this is a guess. +- **The workers' adviser**, $30,000 to $60,000 for the whole sale. That's less than NCEO's figure for a trustee, because the adviser's job is one sale, not years of legal duty as a fiduciary. +- **Help after the sale.** $15,000 of standard help for every firm, and about $70,000 of intensive help for the half who win the lottery ([The Pilot, in Numbers](pilot-spec.md#the-support-lottery)). That's about $50,000 a firm on average. +- **Deals that fall through.** Some owners will get an appraisal and walk away, or the workers will vote no. Nobody knows how many. This model assumes one and a half to two deals get as far as an appraisal for every one that closes. + +Who pays for what: + +- **The seller pays for the checks.** Before the appraisal, the seller puts down a deposit that covers it and the profit check, a fixed amount set in advance that doesn't depend on the value found. It's kept at closing, since these are costs of selling. If the seller walks away, it's kept too, so an owner can't get a free valuation to use in some other sale. It's paid back only if the workers vote no or the bank turns the deal down. If the seller then sells the business to someone else within two years, they repay it. Nothing is added to the workers' loan, so the debt stays within the appraised value. +- **The public pays for the rest:** the workers' adviser, the checks on deals that fall through for reasons that aren't the seller's doing, the re-appraisals in [one deal in ten](#a-fair-price), and the help after the sale. Deposits that are kept go back into the help budget. +- **If money runs short, fewer deals, not thinner help.** Each deal's help is set aside when its loan is made, the same rule [the pilot](pilot-spec.md#the-support-lottery) uses. + +On those numbers, the public pays roughly $110,000 to $240,000 for each sale that closes. So $12 million is set aside. That covers the 55 to 60 sales the loan money allows unless costs run near the top of the range, where it covers only about 50. In that case the help budget, not the loan money, sets the number of deals, and any loan money left unlent goes back to Treasury. + +Because help is given to only half the firms by lottery, the results can show something about what it does. With about 30 firms in each group, that's only a rough signal, and it's reported alongside the startup lottery, not as a test of its own. + +**The money test counts all of it, with no exceptions.** Help is a cost the track has to earn back, just as it is in [the startup test](pilot-spec.md#the-support-lottery), and that makes the test hard to pass. A rough guide: loans go out over the first few years and are paid back over ten, so by year twelve each dollar lent has been outstanding for about five years on average. At 2 to 3 points more than the Treasury rate, $88 million lent that way earns something like $9 million to $14 million more than Treasury would have. Out of that come losses, $12 million of help and the track's share of running the bank. So the track passes only if its losses are low and its help costs sit near the bottom of the range. That's said now, before the first loan, so a failure can't be explained away afterward. + ### How many deals -After the $5 million for advisers and governance help, $95 million at about $1.5 million a deal, half the limit, funds roughly 60 to 65 buyouts. With a private lender and the seller's share on top, that typical deal is a business priced around $2.5 million. 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 terms of every deal are published: the price, the appraisals, the loans and the seller's share. So is what happened to them: every cut to a seller's share, every year payments had to wait, and the losses on deals the bank made alone, reported apart from the rest from the start. +After the $12 million for help, $88 million at about $1.5 million a deal, half the limit, would fund roughly 55 to 60 buyouts, and the help budget may hold it nearer 50. With a private lender and the seller's share on top, that typical deal is a business priced around $2.5 million. 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 terms of every deal are published: the price, the appraisals, the loans and the seller's share. So is what happened to them: every cut to a seller's share, every year payments had to wait, and the losses on deals the bank made alone, reported apart from the rest from the start. ### Who buyouts are compared against diff --git a/JoshHeaps.Net/Content/Socialism/open-problems.md b/JoshHeaps.Net/Content/Socialism/open-problems.md index 5bdbfe2..06a3403 100644 --- a/JoshHeaps.Net/Content/Socialism/open-problems.md +++ b/JoshHeaps.Net/Content/Socialism/open-problems.md @@ -35,7 +35,7 @@ An honest list of what the model hasn't solved yet, most dangerous first. 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. The comparisons are now set out: SBA-financed purchases, ESOP sales and deals that fell through, with a loss rate fixed by formula in advance ([Who buyouts are compared against](buyouts.md#who-buyouts-are-compared-against)). With so few deals, the loss test can catch a track that does much worse than SBA lending, but it can't show that buyouts do better. Why co-ops can't simply use the SBA is now spelled out: its rules ask a co-op, unlike an ESOP, for cash up front and one member's personal guarantee. The bank's deals do without both, so they rest on the seller's paid-last share and a coverage test on past cash flow ([Why not just use the SBA?](buyouts.md#why-not-just-use-the-sba)). Under the SBA's rules from October 2026, those two rules are nearly the whole gap, and both are SBA policy it could change itself. If it does, or a small fund covers the cash stake, much of the track may not be needed. Whether that's enough in place of cash and guarantees is something only the loss record will show. State programs paid for by Treasury and USDA's rural guarantees already allow co-op buyouts in pieces. The track uses them, but can't count them as private money or use them to hide losses ([Other public help](buyouts.md#other-public-help-that-already-exists)). How often private lenders will really take an equal share is unknown, so deals the bank makes alone are capped at a third of the money. +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. The comparisons are now set out: SBA-financed purchases, ESOP sales and deals that fell through, with a loss rate fixed by formula in advance ([Who buyouts are compared against](buyouts.md#who-buyouts-are-compared-against)). With so few deals, the loss test can catch a track that does much worse than SBA lending, but it can't show that buyouts do better. Why co-ops can't simply use the SBA is now spelled out: its rules ask a co-op, unlike an ESOP, for cash up front and one member's personal guarantee. The bank's deals do without both, so they rest on the seller's paid-last share and a coverage test on past cash flow ([Why not just use the SBA?](buyouts.md#why-not-just-use-the-sba)). Under the SBA's rules from October 2026, those two rules are nearly the whole gap, and both are SBA policy it could change itself. If it does, or a small fund covers the cash stake, much of the track may not be needed. Whether that's enough in place of cash and guarantees is something only the loss record will show. State programs paid for by Treasury and USDA's rural guarantees already allow co-op buyouts in pieces. The track uses them, but can't count them as private money or use them to hide losses ([Other public help](buyouts.md#other-public-help-that-already-exists)). How often private lenders will really take an equal share is unknown, so deals the bank makes alone are capped at a third of the money. The help each sale needs, the workers' adviser, checks on deals that fall through and help after the sale, costs the public roughly $110,000 to $240,000 per closed deal, about $12 million in all. That comes out of the same margin the money test measures, so the track passes only if losses stay low ([What the help costs](buyouts.md#what-the-help-costs)). 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 whether Social Security counts a profit share as earned income for SSI, which decides whether members on SSI lose more by joining. SSI may also count an account credit as income when it's made. Until Social Security answers, members on SSI get their share all in cash and join only if they say yes ([How a Locked Co-op Is Taxed](taxes.md#benefits)), and workers who have only an IRS taxpayer number still can't be members. 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. A federal rule due in 2030 requires 80% of certain Medicaid home care payments to go to care workers' pay. Co-ops meet it from wages alone and pay any shortfall as wages, but in that work it leaves little room for profit shares or a reserve, and whether the rule survives is unknown ([When Medicaid decides how much goes to pay](high-turnover.md#when-medicaid-decides-how-much-goes-to-pay)).