Rochester is creating secure, well-paid jobs for its most vulnerable residents by developing worker-owned firms to tender for service contracts with major civic institutions. In the cooperative model, workers are eligible to become members and receive a stake in the company after approximately one year. The project is overseen by a non-profit entity which acts as a holding company to identify openings, create new cooperatives and establish links with target anchor institutions. The initiative is part of a campaign by the City of Rochester to more than halve poverty rates by 2030.
Results & Impact
The first cooperative, Eneroc, secured a contract to install lighting at Rochester Regional Health. This has led to the hiring of three people, who each earn between $12 and $15 per hour and have all been promoted to the board. Future contracts for Eneroc are expected to create another 10 openings. Rochester authorities hope the scheme will create more than 100 jobs for the city's poorest citizens.
The Democracy Collaborative, Rochester City Government, Market Driven Community Corporation, Rochester Regional Health, University of Rochester, Rochester Institute of Technology, St. John Fisher College, Work support agencies
Rochester’s Neighbourhood and Development Authority set up the Market Driven Community Corporation (MDCC), the project's centrepiece, in 2016. The organisation establishes new cooperatives and sources start-up funding. It also identifies potential procurement opportunities and develops links between the cooperatives and the target institutions. Workers are drawn from the city's poorest communities with the help of the Rochester-Monroe anti-poverty initiative, a partnership of community-based support groups, as well as RochesterWorks, a scheme to train workers and help them find employment. MDCC also assists existing companies interested in moving towards a cooperative model. The cooperatives are intended to reduce public costs through competitive procurement contracts and gradually diversify the businesses' customer base to reduce dependency on partner institutions.
Rochester, New York
Cost & Value
Rochester authorities have spent approximately $310,000 on employing the Democracy Collaborative and Eneroc's business manager.
Running since 2016
Because the scheme targets workers from the poorest neighbourhoods, finding employees with the right managerial and technical skills for the cooperatives is difficult. Rochester authorities attempted to recruit the business manager for their first cooperative, Eneroc, from these communities, but could not find anyone with the appropriate skill set. These skill shortages may limit the type of businesses that can be launched. The cooperative model is also limited in the number of jobs it can generate: it aims to create around 100, which may take three companies to do.
The Rochester scheme is replicating a Cleveland-based program that helped about 120 residents of the city’s most impoverished areas find sustainable work through cooperatives. Some 30% of the 120 residents have become co-owners.
Rochester is creating secure, well-paid jobs for its most vulnerable residents by developing worker-owned firms to tender for service contracts with major civic institutions.
The initiative is part of a concerted effort to tackle poverty in the city. In 2013, civic officials launched a campaign aiming to more than halve poverty rates by 2030. This followed revelations that Rochester and the surrounding area were among the worst performing parts of the country in terms of poverty, income rates and welfare dependency. In 2015, more than a quarter of Rochester’s residents were classed as living in poverty. For a four-person household, this means an annual income of $24,250 or less.
Rochester’s plan stems from the success of a similar initiative in Ohio. Building workers’ cooperatives focused on the procurement of major local institutions helped generate around 120 well-paid jobs for people living in some of the poorest parts of Cleveland. In the Cleveland model, workers are eligible to become a member of the cooperative after working at the firm for a year, subject to approval by existing members. Should they be approved, they receive a stake in the company, a wage increase and additional benefits such as access to low-interest loans. The Democracy Collaborative, which oversaw the Ohio project, was enlisted by Rochester authorities in 2015 to help create a similar initiative in the city.
“We know that our traditional economic development strategies really have a hard time creating jobs in high-poverty neighbourhoods,” said Henry Fitts, Director of Innovation at the City of Rochester. “We are reliant on the free market and incentivising employers, but you really have to provide a whole heck of a lot of incentives to get most employers to locate in really high-poverty neighbourhoods. So we looked at Cleveland, Ohio and basically we have been modelling their work in Rochester.”
The scheme has already proved fruitful as the first company created, Eneroc, signed an agreement with local firm Lumalon as a sub-contractor to install lights at Rochester Regional Health. Although this agreement has only led to the hiring of three employees, further deals are expected to follow, which could create another 10 openings within the business. These jobs pay above the minimum wage, with workers earning between $12 and $15 per hour. New York’s minimum wage varies between $9.70 and $11.00 per hour, depending on where in the state the business is located and how many employees it has.
At the heart of the initiative is a non-profit entity, the Market Driven Community Corporation (MDCC), which acts as a holding company to establish and support new cooperative ventures. The MDCC was created by Rochester’s Department of Neighbourhood and Business Development (NBD) in 2016, but operates as a separate, independent entity.
Created by Rochester authorities in 2016, it functions as the “project champion” and encourages major non-profit organisations such as hospitals, universities and government agencies to create partnerships with anchor institutions. These are entities which agree to prioritise the companies created by MDCC for procurement contracts. The project aims to establish around 100 jobs through the scheme, potentially requiring two to three businesses.
The premise is that major institutions with strong roots in the community (as opposed to branches of national businesses) have more of a commitment to the local area and so are more willing to patronise local businesses. In Rochester, the purchasing power of anchor institutions is estimated to be $1.7 billion, predominantly from Rochester Institute of Technology, the University of Rochester and Rochester Regional Health System. All of these organisations have strong commitments to ethical procurement.
“It was very important whether those institutions were bought in on this concept and whether they could direct a small portion of their goods and services procurement to these businesses that we would start up,” said Fitts. “Fortunately, we did find their support and each submitted a letter of support from their CEO-level leaders saying they were willing to work with us, which was the biggest green light.”
To help create partnerships with anchor institutions, the MDCC board comprises individuals from local universities and hospitals. It identifies optimal procurement openings that would best suit a new cooperative, while also taking into account the interests of existing businesses to ensure new companies do not force others out of work.
“It really starts with conversations with the anchors to say ‘What goods and services are you not purchasing locally? Which of those could we localise?’ And if there’s not already a business serving those needs, we can create a business around that niche,” said Fitts.
The subcontracting model used in the case of Eneroc offers several advantages. Employees receive on-the-job training courtesy of the main contractors, Lumalon and SunCommon. It also allows the anchor institution to continue to use any preferred contractors they may have while still supporting the initiative. There are no direct incentives to use the firms subcontracting with Eneroc, although doing so can provide good publicity and ties in with notions of corporate responsibility.
Support is also available for cooperative employees to deal with the social aspects of transitioning to working life. Bridges to Success, a program linked to the MDCC and run by the Rochester-Monroe anti-poverty initiative, helps people build plans to achieve their objectives in specific areas of their lives such as child care, employment and financial literacy. This includes providing them with access to job training and skills workshops. The MDCC also coordinates with the Rochester anti-poverty intiative as a means of sourcing employees, ensuring that the cooperatives truly benefit those most in need. Employees also come through RochesterWorks, a training and employment service for the unemployed.
Although Eneroc was financed through bank loans, the MDCC aims to establish a revolving loan fund so it can provide start-up capital directly. To do this, MDCC plans to retain a stake in the companies it establishes – 10% in the case of Eneroc – to provide a longer-term revenue stream.
The aim is for the cooperatives to provide more competitive options for public contracts and reduce procurement costs. By establishing companies that focus on a single service, it is hoped that partner institutions will benefit from the economy of scale and cheaper work force they will be able to provide, often through sub-contractors.
The MDCC also provides advice and support for existing businesses interested in moving towards a cooperative model, with a particular focus on small family businesses. “For example, where there’s a family owner with no clear heir to the business and they’re thinking about retiring and maybe just liquidating the business – in that case, our community loses 100 jobs,” said Fitts.
“But there are some pretty significant tax benefits to selling to your employees in a structured employee buyout and restructuring the company as a co-op. So businesses see that as an opportunity – and it’s an exit strategy that really lets that proud business owner leave on their terms and lets their legacy live on,” said Fitts.
(Picture credit: Pexels/Quintin)