CLL: Is that when you found out about CDI?
SA: Yes. I met Lynn and Bob of CDI when I was doing the CooperationWorks training at the Federation of Southern Cooperatives down in Alabama. It was a great experience. I met a lot of terrific people. It's been a gradual process from there on. My focus right now is building cooperatives, pretty much full-time. That's why I became a Partner at CDI. We're trying to develop an urban-rural project that would link inner cities and rural areas in building cooperatives by making use of a community empowerment process. I call it 'Dudley Street meets Mondragon' - trying to link the best of the community empowerment process [Boston-based Dudley Street Neighborhood is a national model for community organizers] and trying to connect that to a really dynamic process of not just doing a single cooperative, but of building a network of cooperatives [in the style of Spain's Mondragon cooperatives] to address a set of problems that the depressed community has targeted.
Something like fifty billion dollars a year is spent in state, federal, and local support to development, in tax subsidies and other things. What are the results? In places like Buffalo, New York and Holyoke, Massachusetts it's obvious that we need a new approach. The ideas that are coming up, like gambling casinos and big box stores, seem to be the best some of our political leaders can come up with.  Our hope is that we can come up with some new and better models for community development, and we think it's time -- it's past time -- that the cooperative model gets a lot more attention and support.

CLL: Why do you think it's so hard for cooperative enterprise to go high profile?
SA: It's a long battle to get out of the mindset of looking at communities from approaches that don't respect the native leadership. You can't change a community unless you deal with strengthening the assets within the community: the technical expertise, the creative capacity, and the social networks. If it's just a case of throwing some money at a place and some experts kind of dive-bomb in and shoot back out, the results are just going to be one failure after another. But projects where you focus on the leadership skills of the community and you put local people in the forefront of it, you get a whole different set of results. As one old timer said to me once, 'When you start building a road, you've got to figure out where folks have been walking before you decide where to lay the pavement.' You have to get a sense of what is working, and what isn't, and respect that no matter how badly depressed a community is, there is still tremendous leadership within it.  It just takes a little time to find out where those folks are and connect up with them.
There's some tough stuff folks are going through in our inner cities. In Buffalo, the city went bankrupt. A control board is running it from New York City. They barely averted having to close every single library.  Even during the Great Depression there were no cities in the country that did that.  That's how bad things have gotten. We want to show folks, "You can do something about that." We have a self-help process in cooperative development that's an incredible method, and it's a message whose time has come. I think there are going to be a lot of powerful moments ahead of us for the cooperative movement.

NORTHEAST NEWS
Teaching Community Economics at Southern New Hampshire University

Since 1982, the School of Community Economic Development at Southern New Hampshire University has been the only academic program in the country to offer accredited graduate degrees in this field. It advocates community development as a strategy to help communities become more stable and achieve greater ownership and control over their resources. To this end, it has created a considerable menu of programs, always by building partnerships with other institutions and organizations. The Financial Innovations Roundtable, for instance, develops new ways to link conventional and non-traditional lenders, investors and markets in order to provide increased access to capital and financial services in low-income communities. Members of the Roundtable include representatives from credit unions and community development financial institutions, foundations, academic institutions, banks and investment firms.

The School has a long reach, bringing students to the New Hampshire campus from around the country and the world. (In 2000, partnering with the Open University of Tanzania, the School inaugurated the first Master's in Community Economic Development on the African continent.) The typical program is conducted "long distance" with occasional trips to New Hampshire. Students are often expected to plan and implement a community economic development project as part of the curriculum. This has led to many local improvements in the lives of those touched by the more than 1,000 graduates of the School. With its affiliated Center for Community Economic Development, the School has helped create new institutions and models, including 'Working Capital', the largest peer lending microfinance program in the United States.

Professional training and certificate programs in the form of Institutes include the three-year Community Development Credit Union Institute. This partnership of the School, the National Federation of Community Development Credit Unions (NFCDCU), and the Credit Union National Association (CUNA), supports the growth of credit unions in low-income communities where the need is greatest and sub-standard financial services don't meet it. Students, who must be credit union members, study from home and come to campus twice a year for a week. There is also an online training program for Community Development Financial Institutions, supported by the US Treasury Department CDFI Fund.

The Microenterprise Development Institute (MDI-NH) is an international training program in which students come to the School from 40 countries each summer to explore innovative strategies for integrating microfinance with social development programs. The program is sponsored by numerous humanitarian agencies and relief funds, both public and private, and is based on the School's educational philosophy of promoting critical thinking, integrating prior experience, active student involvement in planning, implementing and evaluating the experience, and respect for cultural diversity. The 2005 MDI-NH will take place from June 13-July 4; applications will be available in January. FMI: www.snhu.edu/sced.html.

Venture Catalysts: The ICA Group

The ICA Group, based in greater Boston, was created to fight job loss and community deterioration by creating worker-owned businesses. A staff of economic and community development professionals lead clients through the learning process about worker co-ops and worker buy-outs of investor owned manufacturing and other types of businesses. Worker co-ops have several market advantages: they're easily understood and simple to create, relatively inexpensive to launch, and offer significant tax benefits to workers-owners. In addition, as with other types of co-ops, they build local assets and help stabilize communities, giving people greater control of their economies.

ICA was behind the creation of the nation's first home healthcare cooperative, Community Home Care Associates (CHCA) in New York City's Bronx. Working with CHCA and the Community Service Society, a private agency, ICA prepared the business plan, raised start-up capital, provided debt financing through its lending affiliate LEAF, and provided guidance to the board of directors during the CHCA's early years. Today, CHCA has nearly 600 worker-owners, most of them women from the lowest income sector, who are now part of a successful business.

In four cities along the Eastern Seaboard, ICA has worked with local groups to form "social purpose staffing" companies that help low-income workers find quality entry-level jobs on both temporary and temporary-to-permanent basis. Such companies provide direct services to help the workers advance, from business and financial planning to help finding childcare and personal support groups. They encourage workers to climb career ladders that will enable the worker-owners to increase their skill sets, their incomes, and their service to the community. ICA has provided ongoing management consulting assistance to all these groups, because they consider it a key to co-op longevity. (ICA's case study, Getting To Work: ICA's Social Purpose Staffing Companies by Susan Eisenberg, and available through their web site, profiles the unique history and character of each of these companies.)

Socially and environmentally conscientious owners have turned to ICA to convert their businesses to worker ownership. These include the 15 worker-owners and 25 employees of South Mountain, a resource-conscious architectural design and construction company on Martha's Vineyard off Massachusetts' Cape Cod, and the 50 worker-owners at Big Timber, a Montana-based custom timber frame manufacturer that uses reclaimed and re-milled wood. Then there's Chroma Technology in Vermont, a designer and manufacturer of optical filters and coating for fluorescent microscopes used in biomedical research, aerospace, communications, commercial electronics and defense applications. While not technically a co-op (it was designed to give the company's founders a majority share while also giving employees a direct stake in the company's governance and financial performance), ICA was able to work with the founders to develop a structure that is democratic and equitable for all 45 worker-owners.

As self-proclaimed "venture catalysts" ICA has saved or created more than 7,000 jobs, largely by bringing the right people to the table for negotiations with owners who want to sell, government bureaucrats who understand the potential of cooperative enterprise, people with financial resource and vision, and community leaders both formal and informal, as well as residents of the communities themselves. And ICA sticks with an organization after the co-op is launched, recognizing that the success of the groups they work with depends on how well the group can grow beyond the start-up phase.  FMI: www.ica-group.org.

LEGAL  FOCUS
Capitalizing Cooperatives, Part 4: Existing Cooperatives by Patrick J. Deluhery

In this fourth segment of the series we will focus on capitalization methods available to cooperatives that have an earnings history. As a quick review, we have previously discussed preferred stock, capital campaigns, and member notes. These may be the only options available to a start-up cooperative, since it has no business or earnings history.

A cooperative with an earnings history has some other options in addition to these. Using allocated retained earnings (margins) as capital is one of the chief benefits of being a cooperative. Here's how it works: the cooperative pays an annual patronage distribution to members, but retains up to 80 percent of that money for use as capital. The member pays personal tax on the full patronage distribution--usually covered by the 20 percent cash distribution. The cooperative then uses (tax free) the amount retained for capital purposes until at some future point, usually within five or six years, the cooperative returns that 80 percent back to the member. This distribution is tax free to the member.
If the co-op repeats this process year after year, it will, over time, accumulate in its revolving capital fund sufficient capital to meet its needs. Moreover, capitalization funds are provided only by active members, and in proportion to their use of the cooperative. Inactive members contribute nothing when they become inactive, and their capital investment is reduced as their previous retains are revolved out. Best of all, this whole scheme is tax advantaged.

Another way to accumulate capital is through "per unit retains." This is a per unit charge on the member's business proceeds passing though the co-op. For example, a dairy cooperative may retain five cents for each unit (hundredweight) of milk processed and marketed for that member. It may then either retain that sum as capital and pay tax on it, or pay it back to the member in the form of patronage and retain a portion of that patronage tax free in the manner just described above.

The final capitalization method we will discuss is use of non-member or non-patronage earnings (for example, investment income, rent from tenants in the cooperative's facility, or revenues from non-members).  Since this source of income is generally segmented from member-sourced patronage income, and is generally not paid as patronage, it is taxable to the co-op and may be retained to capitalize the cooperative as unallocated retained earnings.  The advantage of this source of income is that it never has to be revolved back to the members, but the disadvantage is that the cooperative must pay tax on this amount.

Ed. note: Patrick J. Deluhery is a Massachusetts-based attorney serving the legal needs of cooperative businesses in the Northeast.  FMI : pdeluhery@aol.com. This article is intended to provide information and is not legal advice.

OUTSIDE THE REGION
Building Member Loyalty in Quebec: "Truth on a Daily Basis"

As consumer cooperatives merge and expand membership in order to survive competition from mega-corporations with huge economies of scale, the relationship between 'the Co-op' and the individual member-customers who own it may be threatened. A solution? Since 1999, Canadian educator Daniel Cote, who's been studying co-ops for 20 years, has been looking at member loyalty. Loyalty, he points out, is a competitive advantage when it reduces costs and increases revenue. It's hard to establish in the conventional business world, because it requires "a high level of legitimacy to be earned, and a capacity to meet 'moments of truth' on a daily basis." What does it mean to be loyal to a co-op?  Cote defines loyalty as "a philosophy of leadership, a strategy that allows building and maintaining satisfaction and fidelity of its partners, its members, its employees, its network and its community. It can be achieved by putting in place mutually beneficial relations, based on trust."

He goes on to explain, "My experimental research with a financial co-operative has allowed me to realize how fully integrated all elements mentioned in this concept of new co-operative paradigm are: loyalty, learning, mobilization and meaning, and legitimacy." Co-ops have the natural advantage of a set of principles that closely follows the list of requirements for establishing member loyalty. And numerous polls and market studies have shown that the public understands and supports the greater trustworthiness of the cooperative way of doing business. As well, since co-ops exist to meet (local) members' needs rather than to maximize (absent) shareholders' profits, they can concentrate on serving member-customers, which is fundamental to attracting loyalty.

Success rests on what Cote calls "equilibrium" between collective and individual values based on a partnership of "integrity without compromise", transparency, and an ability to respond to members' enthusiasm as well as to anticipate their future needs. His work has extended far beyond the theoretical or academic arena, having conducted an extensive project at a Quebec credit union or 'caisse populaire' for several years. He began with the employees.

After conducting a survey of best practices to promote loyalty two years in a row, sharing the results with all employees and elected officials in the community, the caisse populaire's 'loyalty score' jumped from 56 percent to 76 percent. Employee loyalty to the business increased when the workers recognized the values and behaviors the caisse populaire was promoting were similar to their own codes of conduct. "They realized they had those values in themselves all along," Cote observes, "It was the organizational context that stopped them from acting and expressing them at work."

A loyalty committee of six elected officials and six employees was formed, which now manages the process of building and managing member-customer loyalty. This included recruiting 150 members who volunteered to help frame questions and issues that affect loyalty, and devising a method for putting these key questions to the membership. "Eventually," Cote emphasizes, "this dialogue will move from a marketing perspective to a democratic functioning perspective ... a co-operative business model centered on loyalty."

The volunteer committee has also taken the initiative to use its resources to examine problems in the community at large. What began as a means of improving the business of their caisse populaire now may be fashioned into a tool for civic improvement.

Daniel Côté is associate professor at L'École des Hautes Études Commerciales, Montréal. For a more detailed analysis of this idea see Côté, D.,'Co-operatives and the new millennium: the emergence of a new paradigm' in Canadian Co-operatives in the year 2000, Memory, mutual aid and the Millennium ed. I. McPherson, B. Fairbairn and N. Russel.  See also GEO newsletter #60 at www.geo.coop for an article by Professor Cote.

BULLETIN BOARD 
Announcements

New Hampshire Community Loan Fund is looking for a Senior Manager of the Manufactured Housing Park Program (MHPP). The Fund's mission is "to serve as a catalyst, leveraging financial, human and civic resources, to enable traditionally underserved people to participate more fully in New Hampshire's economy." The position is a new one created out of the rising demand for quality housing alternatives. Today, MHPP is increasingly seen as a national model and an important testing ground for manufactured housing park co-ops. There are currently 69 resident-owned co-op communities serving 3,300 members/households in the state. Staff has grown quickly to 15 people who work in four main service areas: Cooperative Assistance Team, the Cooperative Home Loan Program, New Production and the National Initiative. For more information contact: Debra Wyman at dwyman@nhclf.org. FMI on the Loan Fund and the MHPP: www.theloanfund.org.

Vermont Alliance of Cooperatives was launched in October, in hopes of raising the co-op profile in the public eye. Founding members, who undertook specific 'Co-op Month' activities to further their mission, include some familiar names to CL Leader readers: Burlington Community Land Trust, Cabot Creamery, Mad River Glen ski area, Onion River Co-op/City Market and Hunger Mountain Food Co-op, both Washington and Vermont Electric Co-ops, the Vermont State Employees Credit Union, Vermont Federal Credit Union and the Vermont Credit Union League, as well as the Vermont Employee Ownership Center, Yankee Farm Credit and Cooperative Insurance Companies. All cooperatives in the state are welcome to join. More than 300,000 Vermonters belong to co-ops, including food, electric, housing, and agricultural co-ops and credit unions. "Cooperatives represent the very essence of community and neighborliness," states Roberta MacDonald, Senior Vice President of Marketing for Cabot Cooperative Creamery, makers of world-famous Cabot cheese. "It is the investment of not just money, but hard work, passion and ownership by our farmers that is the secret behind Cabot's success and these same values and benefits are universal to the co-operative structure." FMI: Lisett Comai at lcomai@vtfcu.

Credit Union National Association (CUNA) announced in December that the board has approved a version of the International Cooperative Alliance's Cooperative Principles tailored for credit unions. A CUNA Cooperative Alliances Committee expanded on the seven principles in order to more directly reflect on credit unions' specific structure and characteristics, including fields of membership, emphasis on member education, and desire to serve members from all walks of life, including people of modest means. "This will draw more credit unions [to the principles of cooperation] and help them better understand the roots and values we share with other co-ops," said William Herring, committee chairman. FMI: www.cuna.org

The 4th Eastern Conference for Workplace Democracy will take place Friday, July 15 - Sunday, July 17, 2005 at the SNHU School of Community Economic Development in Manchester, New Hampshire (see NE News, above). The conference will bring workers, support providers, and scholars together for three days of discussion and study related to democracy in the workplace. The theme is "Growing Stronger Together" and the keynote speaker will be journalist William Greider, an early critic of 'free trade agreements' and corporate globalization, and author of The Soul of Capitalism: Opening Paths to a Moral Economy. The conference committee seeks auction items, which will raise funds for scholarships and other worthy purposes. If you, your co-op, your business, your mother-in-law or your pet parakeet has an item or service to donate to the auction, please contact Susan Halevi Verran at haleviverran@sfeglaw.com. Well, maybe not the parakeet.  

CO-OP VALUES IN ACTION
(5) Education, Training & Information

"Cooperatives provide education and training for their members, elected representatives, managers, and employees so they can contribute effectively to the development of their cooperatives." 

One of the key characteristics of the modern consumer cooperative embodied by the Rochdale Pioneers was a commitment to educating themselves and others. Their first storefront building on Toad Lane included an upstairs meeting room that was also a library. They knew they were "building the road as we travel" in the words of Mondragon founder Father Arizmendi, and they knew the road would have a lot of learning curves on it. The Cooperative Life Leader salutes each and every cooperative around the Northeast that continually renews a commitment to the education and training of its directors, its employees, its members, its customers, and the community in which it co-operates. It is through the willingness to learn -- to take on that new software, to surf the vast electronic classroom into the night, to sign up for a training program or take a study tour -- that we build the road we want to travel.

During the past year, this dedication has been demonstrated many times. One example leaps to mind: the heartwarming and pragmatic dedication, not to mention the hard-earned competence to back it up, of the leaders of the cooperative grocer/consumer retail sector in uniting so many of the country's food co-ops into a national association. Thousands of hours of education, training and information exchange went before this decision, and many of those hours were contributed by a relatively small band of extremely dedicated folks.

Co-op leaders in the Northeast, one of the first regions to organize a cooperative grocers' association more than ten years ago, have been actively involved every step of the way. It was hard work. It's not easy for members or managers of a food co-op with a strong sense of identity and deep community roots to view allocating precious resources to building regional, let alone national, alliances as a high priority. But that's what had to happen to arrive at the National Cooperative Grocers Association.

Regional associations grew up over the years, doing their own education and training. Cooperative Grocer magazine, so ably edited and published by Dave Gutknecht, kept people informed and in the loop as energy built for "cooperating with cooperators." When the large distributor co-ops began to close a few years ago, the retail food co-ops went into high gear. Because enough individuals took enough responsibility to teach and learn from one another, today food co-ops around the United States are positioning themselves to successfully compete with other types of grocery providers. Considering their remarkable success as the instigators of a national trend toward whole, healthy, non-toxic food, let us simply say, Happy New Year and bon appetit! FMI: www.ncga.coop.

Each month we tell stories that embody one of the Seven Co-op Principles or two of the Ten Co-op Values approved by the International Cooperative Alliance www.ica.coop/ica/. We are eager to hear YOUR suggestions!

 
CDI SERVICES

FMI: (413) 774-7599 or info@cooplife.coop.
The Cooperative Life Leader is produced as a service to the regional community by the Cooperative Development Institute, which is dedicated to developing and strengthening cooperative enterprise in the Northeast. CDI staff and consultants provide comprehensive support services, including the following:
* Customer service training
* Annual evaluations (manager, board, co-op)
* Business and strategic planning
* Executive search
* Board and management development
* Membership development
* Cooperative start-ups
* Fundraising
* Legal and personnel issues
* Public policy advocacy

CO-OP QUIZ 029: What do you think is the size of the loan portfolio of Cooperative Fund of New England, in dollars? About how many loans do you think this represents? How does the loan figure compare to the amount contributed as gifts by individual donors? (This is an open book question, FMI: www.cooperativefund.org)

Answer to Q028: What is the Heartland Investment and Rural Employment Act, and how is it relevant to cooperative development?  The HIRE Act, as it's called, was introduced in Congress last July by Iowa's Senator Chuck Grassley. It's described by the National Association of Accountants of Cooperatives as "a comprehensive package with a series of changes to benefit agricultural cooperatives, small businesses, affordable housing in rural communities, and other changes." The bill creates a commission to study whether the subchapter laws should be modernized; to identify the barriers to raising equity within a cooperative; and to examine whether a new limited liability cooperative structure should be created for cooperatives that would benefit from being taxed, and which for business purposes would be treated under the more flexible rules of a limited liability company. The bill was drafted in response to an IRS determination that some cooperatives should be exposed to a regular corporate tax. "This is unfair, and needs to be fixed," Grassley said. His legislation addresses the current situation through numerous specific recommended actions; read about them at the Association's web site, which also links you to the text of the bill: http://www.nsacoop.org/hot-topics3.php.