Transitional Benefit Corporation

A New Model for State and Local Governments with Reduced Tax Revenue

Steve Sorett, Esq., McKenna Long & Aldridge LLP

To Learn More Contact: Robert Knauer CPCM at

703-919-4617

1 December, 2010

Transitional Benefit Corporation Structure

FundsGrantsCRADASContractsUniversitiesNon-ProfitsPrivate SectorPrivate Activity Bonds

AssetsMachineryPeopleBenefits (Pensions/Medical)Business RelationshipSurge Capacity

StructureBoard of DirectorsOfficersOperations

Transitional Benefit Corporation

[501(c)3]

Government Organization

Private Company

New Private Sector Businesses

Transitional Benefit Corporation(TBC)

• New, Innovative Method Of Transferring Government Employees To The Private Sector While Achieving Savings For the Public Sector

• Retain and Accrue Retirement & Medical Benefits.• Create Environment To Produce New Work, New

Clients (outside of government)• A Form Of Privatization In Place: Government only

Buys What It Needs

How This Is Different

• Privatization, Public-Private Partnerships, ESOPS, Outsourcing, Managed Competition, And Leasing Initiatives Solve Some Of The Challenges Facing Government Activities, But Not All.

• The TBC Approach Builds on these approaches but adds an additional dimension – growth potential for the employees and savings to the government.

Problems Facing State and Local Governments

• Increasing Debt and Loss of Revenue

• Need to Reduce Overhead and Staff

• Loss of Human Capital Skills

• Need to Find New Sources of Revenue By Building Private Sector Possibilities

Assets Involved with TBC

• Real Estate – The Land

• Buildings

• Equipment

• People – The Most Perishable Asset

People Are Your Most Perishable Asset

• The “Best” People Will Leave First.

• Need To Have An Immediate Plan In Place To Keep The Best People And Attract Capital.

• Forward Thinking Communities And Businesses Will Endorse A Plan That Reduces Overhead and Staff While Looking Preserve and Grow Human Capital.

TBC Objectives • Reduce Overhead while Maintaining Core Capability

And Surge Capacity• Preserve Expertise Of Key Personnel.• Find “Soft Landing” For Underutilized Or

Entrepreneurial Workers.• Create Business Environment for New Growth in

Private Sector

Objectives

• Transition Public Sector Workforce Into Maintaining Core Government Functions while Concurrently focusing on finding jobs for former public employees in the Commercial Sector.

• Obtain Financing From Grants, Contracts, Tax-exempt Bonds, And Third Party Investments.

• All are REAL possibilities to grow.

Implementing the TBC Strategy

• Build A Not-for-profit Umbrella Organization • Establish A Board Of Directors And Advisors Of

Stakeholders, E.G., Community, State and Local Governments, Universities, Etc.

• Board Appoints Officers And A General Manager/COO.

• Include All Existing Employees Under The Umbrella Who Wish To Participate.

• Include The Private Sector.

Details Of The Structure

• Three Enclaves: Public Sector, Private Sector, Incubator R&D

• Public Employees Under Umbrella Can Move To The Other Enclaves Without Losing Pension Benefits (Analogous To An IPA).

• Private Sector Members Are Selected Competitively Using Public Contract Principles.

• Incubator Receives R&D Funding And Tax Favored Treatment.

Details Of The Umbrella Concept

• Established Under State Law (Or Multiple States) As A Public Benefit Corporation.

• Treated As A Nonprofit Industrial Development Corporation That Can Issue Tax-exempt Bonds Under Pertinent IRS Rulings.

• Public Sector Enclave Can Use All Existing Authorities Of U.S. Code.

• Can Issue Tax Exempt Bonds And Raise Capital.

Details Of the Umbrella Concept

• Can Receive Grants And Cooperative Agreements.

• Can Contract With The Private Sector.

• Can Partner With Other Governmental, Private Sector, Educational, Or Not-for-profit Entities.

• These Monies And Partnerships Form The Basis For Accelerating Economic Growth.

TBC Benefits

• Enables New Economic Development In The Community• Presents Savings To Government By Reducing Overhead And

Payroll Commitments (Buy A “Sip At A Time” Rather Than Carrying People And Assets Unnecessarily)

• Maintains Core Capability For Mission Responsiveness And Surge Capacity – Buy Back The People And Assets On An As Needed Basis.

• Soft Landing For Former Government Employees• Avoids RIF Costs

Getting Started

• Conduct Marketplace Assessment Comparable To A Business Case Analysis,asks: Is This A Bankable Deal?– People: Do They Have The Talent, Skills, And Ability To Be

Competitive.– Market Analysis: Is There Sufficient Workload In Existing

And New Markets To Create A Revenue Stream Sufficient To Cover Costs?

– Competitors: Who Are The Competitors? Can You Win Your Fair Share? Are Their Possible Teaming Or Acquisition Candidates?

Identify Partners

• Employees Move To TBC.

• TBC Enters Into Agreements With Business Partner (s).

• TBC Works With Economic Development Organizations And Community Based Entities To Find New Work.

TBC Personnel Actions

• Voluntary Transfer Of Personnel From Public To Private.– Continue To Accrue Federal Retirement And

Medical Benefits.– Guarantee Of Employment For Specified Period

(Negotiable e.g. one year).

TBC Steps

• Job Offer ( Negotiable - At Current Salary With Benefits) To Every Employee.– Those Who Accept Resign From Public Service

And Receive Negotiated Employment Guarantee.– Those Who Do Not Accept Remain Public Sector

Employees Subject To RIF With No Guarantee Of Employment.

TBC Considerations

• Reimburse Public Sector Retirement Accounts

• Employee View Of Need For Change

• Union View

• Continuity of Mission

TBC Stakeholder Benefits

• Public Employees– Enhances Prospects For Long-term Job Security

But In A Different Employment Platform.– Provides Private Employment While Retaining

Federal Benefits.– Offers Entrepreneurial Opportunities.– Can do much better financially in some cases.

TBC Stakeholder Benefits

• Local Communities– Provides Stable/Stronger Organizations.– Offers Potential For Entrepreneurial Growth.– Retains Prestige Of Premiere Facilities Remaining

In Local Area.– New Tax Base

TBC Stakeholder Benefits• Retains Core Mission And Surge Capability For

Mission Responsiveness.

• Allows For Rapid Disposition Of People And Assets Without Causing Undue Hardship.

• Enables Adaptability And Flexibility To Budget And Other Constraints.

• Only Buy What Government Needs.

Transitional Benefit Corporation Structure

FundsGrantsCRADASContractsUniversitiesNon-ProfitsPrivate SectorPrivate Activity Bonds

AssetsMachineryPeopleBenefits (Pensions/Medical)Business RelationshipSurge Capacity

StructureBoard of DirectorsOfficersOperations

Transitional Benefit Corporation

[501(c)3]

Government Organization

Private Company

New Private Sector Businesses