AB 746

AB746:v99#DOCUMENT

Bill Start

CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION

Assembly Bill

No. 746

An act to add Article 2 (commencing with Section 2720) to Chapter 5 of Title 1 of Part 3 of the Penal Code, relating to corrections.

LEGISLATIVE COUNSEL'S DIGEST

AB 746, as introduced, McKinnor. Inmate Cooperative Program.

Existing law creates specified programs that employ inmates, including the joint venture program, which is established by the Secretary of Department of Corrections and Rehabilitation within state prisons that allows a public entity, nonprofit or for-profit entity, organization, or business to employ inmates confined in the state prison system for the purpose of producing goods or services. Existing law also establishes the Prison Industry Authority within the department for the purpose of developing and operating industrial, agricultural, and service enterprises employing prisoners in institutions under the jurisdiction of the department and for the purpose of creating and maintaining working conditions within the enterprises to ensure prisoners employed have the opportunity to work productively, to earn funds, and to acquire or improve effective work habits and occupational skills. Existing law requires, upon appropriation by the Legislature, the Office of Small Business Advocate within the Governor’s Office of Business and Economic Development to establish the California Employee Ownership Hub that would, among other things, work with all California state agencies whose regulations and programs affect employee-owned companies, and businesses with the potential to become employee owned, to enhance opportunities and reduce barriers.

Existing law, the Cooperative Corporation Law, governs the organization and operation of cooperatives, including, among others, worker cooperatives. Existing law defines a worker cooperative as a corporation formed under the Cooperative Corporation Law that includes a class of worker-members who are natural persons whose patronage consists of labor contributed to or other work performed for the corporation. Existing law requires specified information to be included in the articles of incorporation or bylaws, including, among other things, the apportionment and distribution of net earnings and losses of a worker cooperative. Existing law makes the violation of specified provisions under the Cooperative Corporation Law a crime.

This bill would require the Department of Corrections and Rehabilitation to establish the Inmate Cooperative Program to facilitate operations of inmate worker cooperatives within state prison facilities. The bill would authorize a group of inmates who seek to establish a worker cooperative to apply to the program by submitting an application to the warden of the facility. The bill would require the warden to approve an application only if the applicant, or a cooperative community partner acting on their behalf, submits a plan of operation to the warden containing specified information, including, among other things, the cooperative’s draft bylaws, which describe the cooperative’s mission, the cooperative’s internal governance structure, an initial management structure, and compensation structure. The bill would define a cooperative community partner as a nonprofit organization, cooperative association, cooperative corporation, or individual that supports the inmates with the establishment, operation, and governance of certified inmate cooperatives.

This bill would require a group of inmates seeking to form a worker cooperative to incorporate as a worker cooperative following the approval of an application by the warden. The bill would require the Inmate Cooperative Program to certify the worker cooperative following approval of an application by the warden and incorporation of the cooperative. The bill would require the department to enter into a contract with the cooperative to outline the terms of operation, responsibilities, and compliance requirements. The bill would require a certified cooperative, as a condition to operate in a state prison facility, to write into their bylaws that their cooperative community partner is required to deduct 40% from each inmate’s gross wages and deposit the wages into a specified account. The bill would authorize a certified cooperative to engage in the production of goods, agricultural products, or services for the cooperative’s use and sale.

This bill would require the California Employee Ownership Hub to choose a cooperative institution, which would, among other things, assist in the selection of a financial institution that would steward and manage an account that would be used to, among other things, create economic opportunities for survivors of crime and other persons impacted by their interactions with the criminal justice system with grants for specified purposes. The bill would define a cooperative institution as a nongovernmental nonprofit organization, cooperative association, or similar entity that is dedicated to supporting, overseeing, and promoting cooperative enterprises. The bill would require the financial institution to submit an annual report to the Governor detailing the account’s activities, resource allocations, and measurable outcomes of funded initiatives.

This bill would also require the department to deduct from inmate wages mandatory deductions for restitution orders and fines, among other things. The bill would require the department to provide certified cooperatives with access to necessary equipment, materials, and resources to support their operations, with no obligation for the department to fund these resources. The bill would prohibit an employee of the department from serving as a member, officer, or board member of any cooperative established under the Inmate Cooperative Program or from having any direct or indirect financial interest in the cooperative or its operations.

Digest Key

Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: NO

Bill Text

The people of the State of California do enact as follows:

SECTION 1.

The Legislature finds and declares all of the following:

(a) Incarcerated individuals face systemic barriers to economic independence and reintegration, resulting in high recidivism rates.

(b) Worker cooperatives represent a proven model for fostering financial independence, personal agency, and leadership development. Evidence from international models demonstrates significant reductions in recidivism when incarcerated individuals participate in cooperative enterprises.

(c) Existing inmate labor programs, such as the Prison Industry Authority and Joint Venture Program, primarily focus on external economic outcomes that limit incarcerated individuals’ ability to develop agency and long-term economic empowerment.

(d) Incorporating worker cooperatives into California prisons aligns with the state’s goals of reducing recidivism, addressing labor inequities, and promoting economic growth.

(e) Cooperatives will reduce reliance on public assistance by fostering financial independence and sustainable reentry.

(f) Public safety will be strengthened as individuals gain meaningful skills, stable employment, and the opportunity to reintegrate successfully into their communities.

(g) Incarcerated individuals will give back to California communities and provide pathways for successful reentry with the creation of a Green Cooperative Reentry Reserve supporting the growth of an ecosystem of cooperative enterprises outside of prison benefiting incarcerated individuals, their communities, and the state’s economy.

(h) Integrating climate resilience and adaptation strategies into cooperative models will prepare incarcerated individuals to participate in the state’s growing green economy, address climate-related challenges, and contribute to a sustainable future.

SEC. 2.

Article 2 (commencing with Section 2720) is added to Chapter 5 of Title 1 of Part 3 of the Penal Code, to read:

Article 2. Inmate Cooperative Program

2720.

For purposes of this article, the following terms have the following meanings:

(a) “Applicant” means a group of inmates applying to the Inmate Cooperative Program.

(b) “California Employee Ownership Hub” means the program established pursuant to Section 12100.33 of the Government Code.

(c) “Certified inmate cooperative” means a worker cooperative operating within a state correctional facility that has been certified by the Inmate Cooperative Program.

(d) “Cooperative community partner” means a nonprofit organization, cooperative association, cooperative corporation, or individual that supports the inmates with the establishment, operation, and governance of certified inmate cooperatives.

(e) “Cooperative institution” means a nongovernmental nonprofit organization, cooperative association, or similar entity that is dedicated to supporting, overseeing, and promoting cooperative enterprises.

(f) “Green Cooperative Reentry Reserve” means an account with a community development financial institution, cooperative, credit union, or nonprofit corporation that has at least five years of experience lending to or funding worker cooperatives.

(g) “Inmate Cooperative Program” means a collaborative initiative involving inmates, correctional staff, and external cooperatives or nonprofits to establish and operate cooperatives within state prison facilities.

(h) “Inmate worker” means an inmate working in a certified inmate cooperative.

(i) “System-impacted individual” means a person whose legal, economic, or familial circumstances have been significantly influenced by the incarceration, arrest, or conviction of themselves or a close relative. This also includes individuals affected by interactions with the criminal justice system, irrespective of incarceration.

(j) “Worker cooperative” has the same meaning as defined in Section 12253.5 of the Corporations Code.

2720.1.

(a) (1) The Department of Corrections and Rehabilitation shall establish the Inmate Cooperative Program to facilitate operations of inmate cooperatives within state prison facilities.

(2) An applicant who seeks to establish an inmate cooperative may apply to the program by submitting an application to the warden of the facility.

(3) The warden shall review the applicant’s submission and shall provide written feedback.

(b) The warden shall approve an application only if the applicant, or a cooperative community partner acting on their behalf, submits a plan of operation to the warden containing all of the following:

(1) The chosen name of the cooperative.

(2) The cooperative’s draft bylaws, which shall describe the cooperative’s mission, the cooperative’s internal governance structure, an initial management structure, and compensation structure, including that the cooperative community partner shall deduct 40 percent from each inmate’s gross wages and shall deposit the wages into the Green Cooperative Reentry Reserve.

(3) A draft business plan, which shall include intended sources of capital to start and operate the cooperative, intended hours of operation, projected space and utility requirements, and projected equipment needs. A business plan shall focus on environmentally sustainable industries, such as industries focused on renewable energy, eco-friendly product manufacturing, waste management, and sustainable agriculture, or shall focus on providing goods or services that create healthier conditions for inmates or the general public.

(4) A safety plan.

(5) A letter of partnership from the cooperative community partner with the name and contact information of the cooperative community partner who will act as the primary contact to the inmate cooperative.

(c) Following approval of an application by the warden, the applicant shall incorporate as a worker cooperative, pursuant to Part 2 (commencing with Section 12200) of Division 3 of Title 1 of the Corporations Code, with the support of its cooperative community partner.

(d) The program shall certify the worker cooperative following approval of an application by the warden and incorporation of the cooperative.

2720.2.

(a) The department shall enter into a contract with a certified inmate cooperative to outline the terms of operation, responsibilities, and compliance requirements. The cooperative community partner may act as a liaison during the contract process and provide ongoing support in maintaining compliance with the contract and applicable regulations.

(b) As a condition to operate in a state prison facility, a certified inmate cooperative shall write into their bylaws that their cooperative community partner is required to deduct 40 percent from each inmate’s gross wages and deposit the wages into the Green Cooperative Reentry Reserve.

2720.3.

(a) The California Employee Ownership Hub shall choose the cooperative institution, which shall meet all of the following:

(1) Have at least 10 years of cooperative development experience.

(2) Assist in the selection of a financial institution that will steward and manage the Green Cooperative Reentry Reserve.

(3) Appoint the cooperative community partner.

(4) Provide technical assistance, financial support, and other services to cooperative community partners involved in the establishment, operation, and governance of certified inmate cooperatives.

(b) (1) As a condition of stewarding the Green Cooperative Reentry Reserve, the financial institution shall only use moneys given to it by inmate wages to further the goal of reducing recidivism and create economic opportunities for system-impacted individuals and survivors of crime with grants, low-interest loans, or technical assistance to start or expand environmentally sustainable cooperative projects.

(2) The financial institution shall submit an annual report to the Governor detailing the Green Cooperative Reentry Reserve’s activities, resource allocations, and measurable outcomes of funded initiatives.

2720.4.

(a) The compensation for inmate workers shall be determined by the certified inmate cooperative and shall be consistent with California minimum wage laws. Inmate workers shall receive compensation managed by the certified inmate cooperative through its cooperative community partner. The cooperative community partner shall deduct 40 percent from each inmate’s gross wages to be deposited into a Green Cooperative Reentry Reserve before issuing wage checks. The remaining wages shall then be transferred to the department for structured distribution pursuant to subdivision (b).

(b) The department shall structure the distribution of wages received from the cooperative community partner as follows, with deductions taken from the gross wages prior to distributing the net wages:

(1) Federal, state, and local taxes shall be withheld from gross wages.

(2) Mandatory deductions for restitution fines and orders under Section 2085.5 and other applicable laws shall be withheld from the gross wages. These deductions shall be no more than 20 percent but not less than 5 percent and shall be remitted to the department.

(c) After the above deductions, the net wages shall be distributed as follows:

(1) Twenty percent of the net wages shall be deposited into the inmate cooperative worker’s trust account.

(2) Twenty percent of the net wages shall be deposited into the inmate passbook savings account or another savings account to be released by the department to the inmate cooperative worker upon parole. In the event the inmate passes away while incarcerated or is ineligible for parole, the balance shall be allocated to a designated individual or next of kin, as determined by departmental regulations.

2720.5.

(a) The department shall provide certified inmate cooperatives with access to necessary equipment, materials, and resources to support their operations, with no obligation for the department to fund these resources.

(b) Certified inmate cooperatives shall comply with all labor, safety, and governance standards. The department shall assist certified inmate cooperatives in meeting the Prison Industry Enhancement Certification Program (PIECP) requirements to ensure eligibility for interstate commerce and adherence to federal labor requirements, including fair wages and worker protections.

(c) Certified inmate cooperatives shall provide training in financial literacy, decisionmaking, and teamwork to enhance inmate workers’ postrelease economic opportunities.

(d) Certified inmate cooperatives may engage in the production of goods, agricultural products, or services for the cooperative’s use and sale, in compliance with applicable regulations.

(e) Inmates workers shall be deemed to fulfill their work assignment responsibilities through their involvement in inmate cooperative activities.

(f) Inmate workers may take responsibility for their work assignments with oversight by the warden or their designee, provided that safety and regulatory compliance are maintained.

2720.6.

Notwithstanding Section 2812 or any other law restricting the sale of inmate-provided services or inmate-manufactured goods, inmate workers shall be exempt from restrictions on producing and selling goods or services through the certified inmate cooperative.

2720.7.

Notwithstanding any other law, an inmate who participates in the Inmate Cooperative Program is ineligible for unemployment benefits upon their release from prison based upon participation in that program.

2720.8.

An employee of the department shall not serve as a member, officer, or board member of any certified inmate cooperative established under the Inmate Cooperative Program, nor may they have any direct or indirect financial interest in the cooperative or its operations.

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REVISIONS: Heading—Line 2.

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