2008 Illinois ESOP Capital Hill Visit Recap Last week during the national ESOP Association Annual Conference in Washington, DC, members of our Illinois chapter visited Capital Hill to meet with certain members of Illinois' Congressional delegation and/or their staff. The purpose of these meetings was to talk about ESOPs and to lobby against the provision in the recently proposed Charles Rangel tax bill which seeks to impose a heavy tax burden on deferred compensation arrangements in S corporation ESOP companies and on seller/secondary lender financed S ESOP transactions. The individuals who joined me on the Hill included: Tony Lessmeister, Forsythe Technology, Inc.; Ray Ellingsen, Forsythe Technology, Inc.; Richard Hill, Parksite, Inc.; Alyssa Ketlesen, Forsythe Technology, Inc.; Al Weiss, Forsythe Technology, Inc.; Randy Rowland, Overton Gear and Tool Corp; David Solomon, Pedersen & Houpt; and Glenn Johnson, ComStock Advisors. In general, everyone we met with had a favorable opinion on ESOPs, some in fact had very strong ones. While we encountered some skepticism during our 2007 visits given the bad press the Chicago Tribune transaction was creating, no one had anything negative to say about ESOPs this year. While nearly all knew of the Rangel tax bill, none knew of its provisions negatively impacting S ESOPs prior to the day of our meeting. We discussed with everyone our feeling that the S ESOP tax provision was likely added as a knee-jerk reaction to the Sam Zell-Chicago Tribune transaction, but was very over reaching in its impact. A little education by us certainly went a long way in each of our visits. Nearly everyone agreed the unintended consequences of the S ESOP tax provision in the Rangel bill was not good. The talking points which guided our discussion is attached. Here is a brief report on each of our visits:
1. Senator Barack Obama
For the third year in a row, our chapter met with his Legislative Counsel, Ian Solomon. Although the Senator was in the office the day of our meeting, our group missed him by an hour. We had a very thoughtful and intelligent discussion with Ian about ESOPs. He expressed to us the Senator's generally strong support for ESOPs. In fact, Ian made a connection which none of us considered when we put together our own talking points for the meeting. Ian indicated he had a conversation with the Senator that morning about his travels around the country for the presidential primaries and made a comment about his observations regarding the economic struggles of middle class and low income workers everywhere he went. As we were talking about all the great facts about ESOPs, the general performance of ESOP companies, and the retirement account balances of ESOP participants, Ian commented on how the expansion of employee ownership through ESOPs could serve as a tool to provide greater economic opportunities to middle class and low income workers across the country. We all certainly agreed. Ian did not know about the S ESOP tax provision in the Rangel bill, but understood our concerns about it and said he would examine it more closely. He also said he would take a closer look at the ESOP Promotion and Improvement Act of 2007 sponsored by Senator Blanche Lincoln (D-AK).
2. Senator Richard Durbin
For the second year in a row, our chapter met with his Legislative Assistant, Brad McConnell. This was another great conversation. When we met with Brad last year, he expressed to us the Senator had some hesitation about ESOPs, mostly formed as a result of the bad press circulating about the Chicago Tribune transaction. It seems, however, that transaction provided an opportunity for the Senator to take a closer look at ESOPs generally and get better educated about them. Brad communicated the Senator generally supports ESOPs, but has concerns about ensuring that workers retirement plans remain diversified. We countered that concern by pointing out that the vast majority of ESOPs do not require employees to invest their retirement savings, allowing for deferrals to a 401(k) plan or savings to an IRA to achieve a well balanced retirement portfolio. Brad seemed to understand that point, but given this was an issue we discussed with him last year, it is one which we will need to continue to press to ensure it sticks. Brad similarly was not aware of the S ESOP tax provisions of the Rangel bill and indicated he would also examine it more closely.
3. Representative Rahm Emanuel
We met with Alastair Fitzpayne, Senior Policy Advisor to the Congressman. Alastair very candidly stated that he has never heard the Congressman utter the word "ESOP" ever. I would describe the attitude of this office towards ESOPs as mildly positive. The session was primarily one to educate Alastair about ESOPs and our opinions about why they are so great. Although a great discussion, it does not appear that the Congressman has given much thought or consideration to ESOPs at all. For that reason, though, it was great for us to get this on top of the minds of Mr. Emanuel and his staff, particularly given the Congressman's leadership position.
4. Representative Judy Biggert
The Congresswoman and a staffer, Griffin Foster, met with us. It was great for us to have the Congresswoman in the meeting. This too was a fantastic meeting, as it generated some very intelligent discussion. While some education was necessary from us, the Congresswoman is a big supporter of ESOPs and thought the Rangel tax bill provisions were foolish. Congresswoman Biggert is definitely someone's whose support we can count on for all ESOP issues.
5. Representative Mark Kirk
We met with Senior Policy Advisor, Sue Sweet. Frankly, this meeting was like preaching to the choir. Sue was well versed on all things ESOP. She communicated to us that the Congressman is a huge supporter of ESOP and is also very critical generally of the Rangel bill.
6. Representative Peter Roskam
We had a brief visit with the Congressman, although much of our time was spent with his staffer, Brigitta Johnson. I had provided Brigitta our talking points list prior to our meeting and she clearly had spent time with the Congressman before our meeting to understand his position. She too communicated the Congressman was a big supporter of ESOPs. Much of our meeting was spent simply answering Brigitta's questions about ESOPs and we asked her to pay particular attention to the Rangel bill when it begins to be discussed in Congress.
7. Representative Luis Gutierrez
We met with his Staff Director, Eric Edwards. He too expressed a general support of ESOPs and was unaware of the tax provision in the Rangel bill. Most of our meeting was spent discussing that issue and the implications that tax burden would likely have on current ESOP companies and the growth of ESOPs in the future. Eric had a particular interest in those implications, leading to another great discussion and education. As we talked about the bill's potentially negative impact on the financing of future ESOP transactions, Eric expressed the thought that this was an unintended consequence of the S ESOP tax provision which probably deserves more open discussion given the current tightening credit environment. As we discussed, we as a nation should be looking at creative ways today to expand opportunities to capital, and not do more to restrict them. Given that impact, Eric suggested we explore lobbying Congressman Barney Frank (D-MA) as he is the Chair of the House Finance Committee. Overall, we were incredibly pleased at the results of all the visits. Our two days on the Hill provided a fantastic reminder of how critically important it is for all of us not to take the current legislation benefiting ESOPs for granted. We need to constantly remind our representatives in Washington how great they are for their constituents, keeping this issue on the top of their minds as debate begins about raising new tax revenues. We need to remember we have no one but ourselves to advocate the issues which impact us as an ESOP community and those of our fellow employees. Any opportunity that each of us gets to talk up the great benefits of ESOPs to one of our Senators or your Representative, we must all commit to take it. We are also considering now a creative way for us as a group to make a statement about ESOPs to our entire Illinois congressional delegation. More information on that soon. If you have any questions at all, please do not hesitate to reach out to me. Michael Silverman Vice President & General Counsel SmithBucklin Corporation www.smithbucklin.com (312) 673-5720 (direct) (312) 673-6667 (fax) (312) 371-6715 (cell)