If San Francisco wants to support housing, small businesses or green infrastructure, it already has abundant tools to do so with far less risk
By Prasad Krishnamurthy, Contributor July 18, 2026
Gift Article (SFChronicle.com)
San Francisco doesn’t require a public bank to subsidize the construction of affordable housing or other worthy objectives.Giselle Garza Lerma/S.F. Chronicle
San Francisco could become one of the first major U.S. cities to create a municipal public bank to finance affordable housing, small businesses and green infrastructure.
Last week, the Board of Supervisors voted 9-2 to place a measure on the November ballot that would create a “municipal finance corporation” as the first step toward launching a public bank.
The logic of the proposal appears compelling: If private banks under provide funds for socially valuable investments, a public entity should step in.
That logic, however, is flawed.
The relevant choice is not between a public bank and the private market, but between creating a bank and using the city’s existing policy tools. When comparing those options, it is clear that San Francisco already has the means to expand investment more transparently and at a lower cost and risk than by establishing a public bank.
Take the case of housing, where supporters argue that a public bank could expand affordability by providing developers with cheaper financing. But if the city’s objective is to subsidize housing supply, there is no need to create a public bank to achieve it.
San Francisco already operates a direct and transparent housing subsidy mechanism: the Housing Trust Fund. The fund was established to create, acquire and rehabilitate housing units for low-income and moderate-income families. It has procedures for determining eligibility, evaluating competing proposals, allocating funds and monitoring compliance. The city appropriates about $52 million annually to housing developers, and officials have proposed increasing funding to $125 million — compelling evidence that San Francisco can expand direct funding for housing without creating a public bank.
If the city wishes to make additional investments in affordable housing, why not allocate those funds directly through the Housing Trust Fund? The subsidy would be explicit, appropriated through a normal budget process and delivered through an existing institution.
In contrast, bank subsidies can be opaque, uncertain and volatile. With a bank loan, part of the subsidy is granted upfront through a below-market interest rate. The amount of this subsidy is hard to calculate because it is often unknown what a private lender would charge for a particular project. In addition, given the political nature of housing development, the initial subsidy could expand substantially through loan losses — making the total subsidy over the lifetime of a project hard to predict, measure and control. As a result, projects that fail to repay can receive large effective subsidies, much larger than intended.
Some city officials no doubt believe that subsidized lending acts as a multiplier that can stretch public dollars further than direct grants. Perhaps so. But even then, San Francisco already possesses a financial tool that is superior to lending through a public bank: housing bonds.
Through municipal bonds, affordable housing developers gain access to financing at below-market rates. Investors accept lower returns because of tax or other advantages associated with the bonds, which translates into lower borrowing costs for developers. Economically, this reduction in borrowing costs represents a subsidy to housing production and serves the same function as a low-interest bank loan. In fact, the city can tailor the bonds to require an identical interest payment as a public bank loan.
San Francisco has long relied on affordable housing bonds to support housing production and preservation. In 2024, voters approved a $300 million affordable housing bond, and San Francisco has issued more than $1.3 billion in bond financing over the past decade — evidence that the city already has the capacity to expand affordable housing finance at significant scale.
Bond financing offers several advantages. Bond markets rely on private investors to evaluate projects and both price and bear the risk. A public bank, on the other hand, concentrates underwriting decisions in a single institution, and the city or the bank’s depositors will be on the hook if a housing loan goes sour. Studies of public banking indicate that political incentives can weaken underwriting discipline and undermine accounting transparency. In contrast, bond markets provide repeated price signals based on arm’s-length transactions, so the cost of subsidized finance is easier to observe. The administrative expenses of bond financing are also predictable, whereas public banks may experience higher operating costs.
The same logic extends beyond housing. If San Francisco wants to support small businesses or green infrastructure, it already has the tools to provide subsidies and financing without creating a public bank.
About Opinion
Guest opinions in Open Forum and Insight are produced by writers with expertise, personal experience or original insights on a subject of interest to our readers. Their views do not necessarily reflect the opinion of The Chronicle editorial board, which is committed to providing a diversity of ideas to our readership.
Read more about our transparency and ethics policies
For San Francisco and other cities looking to expand public investment, starting a public bank may sound innovative, but new institutions should be adopted only when they improve on existing ones.
Increased municipal investment is a worthy goal, but it does not require a public bank.
Prasad Krishnamurthy is a professor at the UC Berkeley School of Law, where he teaches and writes about financial regulation.
