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A coalition of activists in 10 California cities is pushing for public banks as a bill to support this voter-run option works its way through the state legislature.

“We planted a seed,” tweeted Public Bank L.A., the day the organization’s ballot measure—which would have created the country’s first city-led public banking institution—failed last year in Los Angeles. “This is just the beginning.”

Turns out they were right. After voters in L.A. rejected the measure that would have allowed the city to divest funds from Wall Street banks and create their own public banking institution at the local level, Public Bank L.A. converged with Public Bank San Francisco and coalitions in eight other California cities and regions to form a united public banking front. And now, a state assembly bill, AB 857, that would make it legal for each of these cities to open local banks, cosponsored by San Francisco Assembly member David Chiu and Los Angeles Assembly member Miguel Santiago, has advanced through the California Assembly and into Senate committees.

Consider the way cities bank now: They collect thousands in tax revenue each year, then park that money in commercial banks that choose the projects and industries in which to invest the city’s money in hopes of growing it. By opening local public banks, advocates say cities could decide where to invest those funds—and take out loans to finance other public projects for lower interest rates, from banks they control. The banks’ priorities would be set by voters, and they’d be run by civil servants and financial experts.

“When you’re backed by a city, you have a democratic constituency to hold the bank accountable,” said Sushil Jacob, director of Economic Justice for Lawyers Committee For Civil Rights SF and one of the architects of the state and local legislation. “The city is identifying the needs for the community, and they’re turning to the bank to finance those needs.”

L.A.’s 2018 push for public banking zeroed in on its potential to serve cannabis companies, which many traditional banks won’t touch while the sale of marijuana remains illegal at the federal level. This time around, activists and legislators in California cities are focusing on what public banking could do to help cities finance affordable housing, shrink inequality, and bolster climate change resilience efforts.

“Every politician is talking about affordable housing, but it would be so much more powerful if they had a bank that was financing affordable housing,” said Jacob.

Right now, “half of the total cost of some current infrastructure projects … goes simply to cover bank interest and fees on loans,” the California Public Banking Alliance, a group sponsoring the bill, estimates. Using publicly run banks, advocates believe cities could get that infrastructure financing at cheaper rates than in the private market.

“We have a lot of nonprofits that are trying to find access to [capital] so they can build affordable housing for people, but they’re trying to fight for crumbs,” said Julian LaRosa, an organizer with California Public Banking Alliance and San Francisco’s Public Bank Coalition. “In San Francisco, the main argument is how much can we get developers to invest in affordable housing—instead of having a city that has the kinds of capital they need to invest in people who can build affordable housing.”

Several California cities have also made commitments to powering themselves with 100 percent renewable energy, but need to build out the green infrastructure to deliver it. “We can’t really rely on PG&E to help us in that process when they’re primarily fossil fuels,” said LaRosa. Rather than pay PG&E to use their grid, he says, why not let San Francisco invest funds in organizations like Clean Power SF instead?

The traditional banking industry is skeptical of using public banks to further these seemingly progressive goals. “There’s been some suggestion that these types of banks would lend to entities that might not otherwise be creditworthy,” Beth Mills, a spokesperson for the California Banking Association, told CityLab. “In the event that there are loans that fall delinquent or issues with the bank, then you’re essentially putting taxpayer dollars at risk.”

Other opponents say that the resilience of the entire state depends on keeping those public funds safe. “Over the years Californians have seen all manners of disasters—natural and economic—that require immediate and unwavering responses,” wrote Shari Freidenrich, the Orange County Treasurer, and Keith M. Williams, the president of the California Association of County Treasurers and Tax Collectors, in an op-ed in the Orange County Register. “As such it is critical that the funds of the responding communities be available immediately to fight the disaster and as well as being held in diversified products that don’t expose constituents to a concentration and leverage affect that occurs when holding all of one’s fiscal eggs in one’s own basket.”

Public banks may help cities invest in affordable housing more quickly—but if those same investments don’t help city budgets grow as fast as they used to in commercial banks, Freidenrich and Williams argue that a public model could threaten municipalities’ long-term stability.

Even advocates acknowledge that the process of building banks from scratch will be expensive, time-consuming, and logistically complicated. In San Francisco, for example, the city would be tasked with moving a $12.3 billion-plus budget out of Bank of America and U.S. Bank and into a public one, figuring out a governance model, and agreeing on how that money will be invested.

“For a sense of the scale of this work, this bank would be responsible for handling the 1.2 million checks deposited per year by the City, the 323,000 credit card transactions, and 847,000 outgoing payments per year,” reads a report by the San Francisco Treasurer’s office, assessing the feasibility of one potential municipal banking model, which would have the city divest entirely from current banking partners. Another model, which would both divest and allow the bank to issue loans to support affordable housing projects and small businesses, would need to collect $935 million in deposits before beginning lending. It would take a projected 56 years to break even.

Statewide assessments reveal similarly stark numbers. A feasibility study conducted by the California Treasurer’s Office last year estimated that launching a “California cannabis bank” would take $35 million in start-up costs over six years, then about $1 billion in capital to operate. The bank wouldn’t start to pay out dividends for about 25 to 30 years.

“Establishing a bank is not an easy thing to do for a city or any sort of municipality,” California Banking Association’s Mills said.

But with the regulatory framework for municipal banks established through Chiu and Santiago’s bill, AB 857, public banks would be much easier to get off the ground, David Jette, co-founder and legislative director of Public Bank L.A,  told The New York Times.

And during the time it takes to launch them, Jette says cities should start investing money in local credit unions and community banks right away.

Municipal public banks do not intend to compete with smaller local banks and credit unions, and will prioritize partnering with instead of replacing them. (Indeed, Jacob says that another challenge to passing AB 857 will be convincing these smaller operations that they won’t become obsolete once cities adopt a public option.) But he also acknowledges that the millions of un- and under-banked people in the United States—who are concentrated in rural areas, not major California cities like L.A. and San Francisco—need expanded options, too.

“This is like when you think about the monarch butterflies that are disappearing; it’s happening under our eyes,” Jacob said. “The local banks are leaving us. We increasingly only have a few mega-banks that are occupying our towns and cities, and then we have credit unions.”

If AB 857 passes and state law is changed, cities would allow voters to amend their charters to dictate the scope of each municipal bank. Some could allow individuals to cash deposits, for example; others could partner with local banks to give commercial loans to businesses.

But the next hurdle would be determining who runs them. The bill prohibits private entities from being bank shareholders and bans elected officials from serving on boards themselves. “Some cities might institute independent boards,” said Jette. The model I prefer to see and would like to see in L.A. is one that derives from neighborhood councils, so you have a maximum level of democracy in choosing the administrators of this bank all the way up to the professional bankers that run it.

This makes California’s push for public banking different from North Dakota’s statewide public bank, which has been heralded as a successful pioneer of the system. The Bank of North Dakota was founded in 1919, in a time of economic uncertainty, wrote Sarah Jones in the New Republic: “Farmers, concerned that large grain traders and banks based outside the state threatened their economic sovereignty, saw a public bank as a means to protect themselves from exorbitantly high interest rates that put their farms at financial risk.”

Today, the bank—which was founded with a $2 million bond sale—is profitable, earning $159 million in 2018. Boosters thank public banking for helping North Dakota weather the recession: It was the only state in the country that sustained a surplus in 2009.

Seattle, Washington, D.C., New York City, and New Mexico have all been exploring their own public banking options, fed by a similar desire to make a social impact with their coffers. The movement is also driven by many recent “market failures” in the commercial banking industry—the predatory lending that precipitated the 2008 housing crisis, Bank of America’s illegal foreclosures, Wells Fargo’s history of opening illegal accounts, and industry-wide cases of wage theft. With its ten-city coalition, however, California’s public banking movement is one of the most powerful.

“We’re at that moment where housing and environmental and education crises are especially acute in California,” said LaRosa. “It’s time to act now instead of waiting for another decade and hoping things will get fixed.”

CORRECTION: A previous version of this story used an outdated number of cities in the California Public Banking Alliance. The number is 10.

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