Chapter 185 Revisions: Frequently Asked Questions

Chapter 185 Revisions: Frequently Asked Questions

Who supports this legislation?
The Cooperative Statute Modernization Bill (AB 353 and SB 281) has bipartisan support from 26 members of the Wisconsin Assembly and seven Wisconsin Senators.


What is the benefit to having appointed directors?
If Chapter 185 is updated, cooperative members would be enabled to have the option of nominating appointed directors to serve on their cooperative’s board. During formative discussions of this bill, the Cooperative Network-led working group noted that allowing for an appointed director role lets the individual be fully engaged in decision making, broadens the areas of expertise available to the board and will perhaps even encourage young members to experience how the board operates.


What if we don’t want appointed directors?
The proposed changes only increase the number of options available to cooperative members. Every cooperative would still need member action to enact a bylaw revision allowing for these provisions.


Who does the patronage voting piece apply to?
The bill addresses allowing cooperative holding companies to have the option of voting based on patronage. This is not a new concept as a number of other states have followed this model for decades. This update only applies to cooperative holding companies, of which there is only one in Wisconsin: Cooperative Resources International. The holding company would have to receive approval from their member delegates in order to implement this change. To be clear, this provision will not be an option for traditionally organized cooperatives, only cooperative holding companies such as Cooperative Resources International (CRI).


What is a Cooperative Holding Company? How does it differ from a “regular” cooperative?

There is only one Cooperative Holding Company in Wisconsin: Cooperative Resources International (CRI). This means CRI is the mother cooperative to three unique subsidiaries – AgSource, GENEX and MOFA GLOBAL. This organizational structure enables CRI to effectively and efficiently provide services that benefit the individual subsidiaries. As far as the structure, the assets and the balance sheet are held at CRI while the management is at the subsidiary level.


How will these changes to Chapter 185 impact me and my cooperative? (Specifically for those members of GENEX and AgSource.)
This legislation broadens possibilities and enables cooperatives, like GENEX and AgSource to have future options allowing cooperatives to remain strong in a rapidly changing world. When this statute passes, we don’t expect immediate impact for members of GENEX and AgSource. It simply allows cooperative members the opportunity to discuss future governance options.


Were members involved in the discussion?
GENEX and AgSource delegates discussed cooperative law and equity-based versus member-based voting at delegate meetings across the U.S. in 2013. At that time, five states (Texas, Oregon, Washington, Kansas and Iowa) provided for optional equity-based voting.


Why is the proportional voting change important to how the business is run? What will happen if the amendments don’t pass?
The CRI and subsidiary Boards have discussed this issue. Some feel production agriculture will demand this change in time if cooperatives are to remain relevant. Further discussions amongst member-owners would be implemented before a member vote is taken.


Why would co-ops want to remove the 8 percent cap on dividends?
In today’s low interest rate environment, it is hard to imagine a time when any business would have to pay over 8 percent on borrowed capital. This forward-looking change would allow co-ops to pay a competitive rate on dividends in a different interest rate environment.

Many types of co-ops have used stock issuance as a way to capitalize during a start-up or expansion to serve their members, rather than borrowing from a financial institution. Furthermore, removing the cap on dividends applies to all membership capital, thus allowing co-ops to give higher profits back to the member-owners they serve in good years, rather than being forced to keep earnings.

Lastly, it is important to note that agricultural producer cooperatives must comply with the Capper-Volstead Act, an act of Congress which requires producer-owned co-ops to conform with one or both of the following requirements:

  • No member of an association is allowed more than one vote because of the amount of stock or membership capital allowed.
  • The association does not pay dividends on stock or membership capital in excess of 8 percent per year.


Is
my co-op still going to notify me about unclaimed capital credits?
Yes. Co-ops make every effort to locate all members who are entitled to their allocated equity that is made available. If a member can’t be reached by mail at their last known address, the co-op posts an additional notice in the newspaper.

This bill still requires a co-op to provide a notice in the newspaper. It will allow a co-op to either provide the list of names and addresses in the newspaper or provide additional information in the newspaper on where to access this information electronically. This change recognizes the benefits to members and the co-op of utilizing electronic resources for information sharing.


Why
would a cooperative want to limit access to financial records to co-op members?
Access by members to cooperative financial records must be for legitimate purposes.

The bill modifies existing law by establishing a reasonable period of time for members to request co-op financial records. This minimum time-frame is the current fiscal year plus the three previous years. This timeframe is generally the same time period used by the IRS for conducting an audit.

These changes also recognize that co-ops have a legal obligation to maintain the privacy and confidentiality of certain records, including but not limited to personal information protected under Health Insurance Portability and Accountability Act.

The intent of these changes is to establish a reasonable timeframe that cooperatives must provide financial records to members when requested. Cooperatives can provide more information beyond the time period at their discretion and persons can still exercise their legal rights of discovery. Currently, the timeframe is open-ended and theoretically, a member could request all available information, which is an unreasonable request that other members of the co-op would pay for.


How
are financial institutions impacted by the electric cooperative lending provision?
The impact to financial institutions will either be negligible or potentially creates a new opportunity. Currently, the market for these types of loans is extremely narrow yet very beneficial for those who may not have an established credit history. However, if such loans became popular this legislation allows electric co-ops to partner with financial institutions.

Electric co-ops have existing authority to provide consumer loans to their members. Under the bill, this authority would be simplified for four types of loans. The bill retains relevant Consumer Act protections for co-op members.

For these types of loans, an electric co-op may file a deed notice for the associated property. The notice is not a lien and is meant to notify prospective buyers of a financial obligation to the co-op. The notice also provides a mechanism for such things as home insulation or caulk that a UCC filing would not cover.


Are
electric co-ops trying to bring in a new revenue stream with the lending provision? 
These loans are intended to provide a service to members that is not generally being offered due to the considerable regulatory requirements. While the demand is expected to be minimal, the benefit can be considerable for those who take advantage of the opportunity.

Interest rates are anticipated to be low, the demand small, and margins that would be minimal. These loans are generally intended as a self-help option for members with lower incomes where the improvements also benefit the public good. They will help members’ cash position, address safety concerns, and provide backup power when prolonged outages occur.


What
is the purpose of electric cooperatives being able to lend to their members?
Electric co-ops want to help their members make improvements that are beneficial by either reducing energy costs, addressing serious safety concerns, or improving reliability during prolonged outages. Most of these loans will help members who do not qualify for low income assistance programs and would have difficulty obtaining reasonably priced conventional financing.

The provisions in the bill use the existing authority to offer consumer loans, under a simplified process, for four qualifying projects - wiring safety, energy efficiency, conservation and back up generation.

For example, one of the greatest returns on investment is weatherization improvements. Simply adding more insulation and sealing cracks can drastically reduce energy bills. Loans for insulation and sealing activities cannot be secured by a UCC filing because it will remain with the property and can’t be recovered like a vehicle can.

In addition, an electric co-op would be able to use an existing lending agreement with modifications, and avoid costly upgrades to their IT and billing platforms.

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