Will San Francisco be the first city-owned public bank?
Mired in Dull-as-Dishwater Details, Its an Amazing Accomplishment — But Will Oakland Beat Us To It?
•••••••••• August 16, 2023 ••••••••••
San Francisco may become the first City in the nation to create a Public Bank. The long-awaited and much-discussed plan for a public bank has not yet been adopted by the Board of Supervisors, but the Reinvestment Working Group (RWG) has submitted its final plan. It is now in the hands of the Supervisors to work out the final details and move forward.
If you would rather not have the City’s homeowner taxes, traffic fines and bridge tolls invested in fossil fuels, or predatory lending practices, etc., City Hall progressives and moderates have been working together to find a work-around and they have taken another major step.
“We are not adopting an ordinance that will create a public bank tomorrow,” said Supervisor Dean Preston, Chair of the Government Audit and Oversight Committee, "we are hearing from and accepting plans and recommendations from the body that the Board of Supervisors created to bring us a plan. I'd like to continue the momentum and make San Francisco the first City with a public Bank," he said at its August 20 meeting.
“The opportunities that a municipally owned bank offers would be to invest in the three principal areas that this plan would focus on — funding affordable housing in San Francisco, funding small businesses, and green infrastructure,” Supervisor Preston added. See his press release. Currently, the City has funds in Union Bank, Bank of America and Wells Fargo.
A public bank would be allowed under terms of AB 857: “… financial institutions that are owned by one or more public entities, such as a city, county, or joint powers authority. They can invest, lend, and provide banking services to the local community, and can partner with local financial institutions.” Known as the Public Banking Act, authored by SF’s Assembly Member David Chiu and Miguel Santiago representing LA – Hollywood, it was signed into law by Governor Newsom in October of 2019. Chiu commented that it was “the hardest bill I ever got passed” as Assembly Member. It does not allow public banks to compete with community development investment funds or credit unions.
Los Angeles Probably a year and a few months behind SF, Los Angeles has made some progress toward establishing a bank — even after voters rejected the idea in 2018. The City Council, as a result of AB 857, set the wheels into motion requiring a timeline for applying for a charter to state authorities. It recently hired consultants HR&A (the same consultants SF used to formulate its plan).
I’d like to continue the momentum and make San Francisco the first City with a public Bank”
Seattle Its City Council commissioned a feasibility study in 2018 by consultants HR&A after passing a resolution to cut ties with Wells Fargo. It issued a Request for Proposals (RFP) to other financial institutions. But when no other banks responded to the RFP, Seattle resumed its relationship with the bank. The study notes the need for legislative action from the state (they don’t have an AB 857) as well as a vote of the public to change the charter to allow a public bank.
Philadelphia began its quest for a public bank in 2016 when it passed a resolution to begin hearings on establishing a public bank. It was the first bill Philadelphia City Council Member Derek Green advanced after his election. “As a former small business banker himself,” Next City reported, Green came to believe in this public bank model as an idea that could increase access to credit for Black businesses in a city that is 45% Black but only 2.5% of businesses with employees are Black-owned.” The council approved a Philadelphia Public Financial Authority on March 3, 2022, by a vote of 15-1. An actual bank is far in the future since Pennsylvania doesn’t have a legal structure that an AB 857-style law provides, and it may require a vote of the city's electorate.
Oakland SF’s biggest competition in the quest for first place, however, is Oakland. “Oakland may get there first,” Khalid Samarrae, SF Local Agency Formation Commission Policy Analyst, told the Westside Observer, “They are moving quickly.” Known as the Public Bank East Bay, the cities of Richmond, Berkeley and Oakland have passed resolutions to collaborate, and they are already advertising for a CEO and have $500,000 on hand.
That's a big step ahead of SF, which is still waiting for its Board of Supervisors to return from August recess. “It might be a good thing if Oakland establishes a bank first,” Samarrae observed, because we will learn from their process and possibly from their mistakes.”
Public Bank’s Humble Beginnings
The public bank model is the Bank of North Dakota, established in 1919, described by Westside Observer reporter Derek Kerr: “During the early 1900s, North Dakota’s economy was based on agriculture, specifically wheat. Frequent drought and harsh winters didn’t make it easy to earn a living. The arduous growing season was further complicated by grain dealers outside the state who suppressed grain prices, farm suppliers who increased their prices, and banks in Minneapolis and Chicago, which raised the interest rates on farm loans, sometimes up to 12%. North Dakotans were frustrated, and attempts to legislate fairer business practices failed.
Despite its small population and modest activity, the Bank of North Dakota held $6.1 billion in assets in 2021, including loans of $3.3 billion. The bank’s capital in that year was $463 million. The bank turned a profit of $81 million in 2012. The entire population of North Dakota is less than San Francisco, with 775,000 compared to our 815,000.
Next Step — the MFC
The RWG has already been commissioned and has filed its final report. But we won’t be stashing our hard-earned greenbacks in an SFPB for at least five years. “The main next steps are creating the Municipal Financing Corporation (MFC),” according to Samarrae, “and funding and capitalizing the MFC.” The MFC will be a non-depository lending corporation wholly owned by the City. The Supervisors will determine the most cost-effective way to fund and capitalize the MFC — most likely the using EPA’s Greenhouse Gas Reduction Fund (GGRF).
At best, it will be for up to three years, after evaluation from state and federal authorities, that the City might move forward with converting the MFC into an actual bank. We won't likely be writing checks from a San Francisco Public Bank for another five years.
The idea for a public bank in San Francisco was first floated by Supervisor John Avalos in 2011, to separate SF’s funds from investment in fossil fuels, and he called for a feasibility study. Supervisor Sandra Lee Fewer carried the ball after Avalos left the chambers and her successor, pushing forward is Supervisor Dean Preston.
Doug Comstock serves as editor of the Westside Observer
August 16, 2023