February 2019
By Dr. Derek Kerr (westsideobserver.com)
Animated by indigenous tribes protesting the Dakota Access Pipeline and its threat to the Standing Rock Sioux water rights, local supporters lobbied to divest from banks funding oil pipelines. In March 2017, the Board of Supervisors directed City Treasurer Jose Cisneros to do so. But those banks also financed private prisons, hedge funds, weapons manufacturers, fossil fuels, tobacco interests, and luxury real estate. Plus their predatory practices cheated customers and tanked the financial system. When it came to loans for City housing, infrastructure, transit and higher education, their interest charges were steep. Since the Westside Observer’s May 2017 article “A Public Bank for San Francisco” appeared, much has happened.
| 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.A.C. Townley, a politician who was fired from the Socialist Party, organized the Non-Partisan League with the intent of creating a farm organization that protected the social and economic position of the farmer.The Non-Partisan League gained control of the Governor’s office, majority control of the House of Representatives and one third of the seats in the Senate in 1918. Their platform included state ownership and control of marketing and credit agencies. In 1919, the state legislature established Bank of North Dakota (BND) and the North Dakota Mill and Elevator Association. BND opened July 28, 1919 with $2 million of capital. |
Per the Controller’s SF OpenBook website, the City paid private banks a whopping $581,707,462 in debt interest on bonds and loans in 2017-18. Of that amount, taxpayers owed up to $121 million, according to the Comprehensive Annual Financial Report. The rest was owed by ratepayers using water, transit, airport and other revenue-generating services. Either way, bank executives, shareholders and bond holders reaped the proceeds. Also, the Treasurer’s Office reported $864,000 in bank fees last year. In response to public pressure to save money and place our money where our values are, City officials, like those in Oakland and Los Angeles, began exploring Public Banks, utilities that serve the public good.
Public input also favored divesting from Bank of America and Wells Fargo. However, the Treasurer’s Office finds it daunting to ‘create a Public Bank from scratch.”
Pursuant to the Board of Supervisors’ Resolution 152-17, sponsored by Malia Cohen, Sandra Lee Fewer, Jeff Sheehy, and Hillary Ronen, Treasurer Cisneros organized a 16-member Municipal Bank Feasibility Task Force. At Supervisor Fewer’s request, the Budget & Legislative Analyst’s Office issued a November 2017 report upholding Public Banking and other community supportive banking options.
After 9 months of deliberations and consultations with experts and other municipalities, the Municipal Bank Feasibility Task Force released an Executive Summary in September 2018. It presented 4 models.
The Wholesale Municipal Bank, providing real estate, small business, and student loans, was based on the nation’s oldest public bank, the Bank of North Dakota. It would cost $134 million upfront, plus $425 million over 10 years, and would lose $60 million before showing a profit by year 10. However, a full-service municipal bank offering direct loans to consumers, small businesses, and students would lose $84 million over 10 years and “will never be profitable.”
The most viable model, a Commercial Municipal Bank, would use the City’s General Fund for lending. By not taking deposits, it would eliminate the complexity and costs of a getting a charter. It would make money by year 2, and a $17 million profit by year 10. But it wouldn’t break from Wall Street or provide consumer loans.
On 12/13/18, the Board’s Budget & Finance Committee heard updates from the Treasurer’s Office regarding the Municipal Banking Task Force. Its service priorities are affordable housing, small businesses, infrastructure, unbanked residents, then cannabis. Turns out the 4 models proposed in September took flak for being “too small – not thinking big” according to Amanda Kahn Fried. Public input also favored divesting from Bank of America and Wells Fargo. However, the Treasurer’s Office finds it daunting to “create a Public Bank from scratch,” declines to recommend a Public Bank, and hasn’t provided a roadmap to establish one. By focusing on the costs of a Public Bank, the social costs of depositing public dollars in private banks are obscured. Supervisors Cohen and Fewer urged the Treasurer’s Office to “think big,” move beyond its comfort zone, and create a path forward with State legislators. The goal would be “local control, financial empowerment, and transparency” for the City’s $11 billion bank balance. Accordingly, the Task Force will present 3 new models: Divestment, Re-Investment, and a Combination at its last meeting at 3 PM on January 31, Room 305, City Hall.
| The counting room at the Bank of North Dakota |
Meanwhile, on 1/10/19 over 200 people packed the Women’s Building to launch the San Francisco Public Bank Coalition (SFPublicBank.org). Among the speakers were former Supervisor John Avalos and Supervisor Fewer. Avalos, who pioneered hearings on Public Banking in 2011, recalled how private banks were bailed out by taxpayers, while thousands of residents lost their homes or were displaced from the City. He too defaulted and lost his home. Supervisor Fewer emphasized “there is no social justice without economic justice.” Since money is power, she wondered why the City renders its $11 billion fund unto predatory banks.
Julie Carter from the California Nurses Association explained how big banks fund corporations that exploit people and harm public health. She viewed a Public Bank as supporting public health and well-being, while serving as an antidote to corporate greed and profiteering. Claire Lau from the SF Berniecrats, and Fernando Marti from the Council of Community Housing Organizations, also voiced enthusiastic support. Dozens of other community groups support the concept. SF Public Bank Coalition organizers Kurtis Wu and Jackie Fielder announced their intention to place a Public Bank Charter Amendment before voters in November. Supporters can check SFPublicBank.org for educational sessions and work groups.
Regulatory and political hurdles abound. Last November, Los Angeles placed a Charter Amendment on the ballot to allow the creation of a Public Bank. A robust 44% of voters approved – but it failed. Oakland, Berkeley and Alameda commissioned a study concluding that a multi-Jurisdictional Public Bank was feasible. But the Oakland Treasurer’s Office rejected it citing “no clear roadmap, structure or supporting data.” As for cannabis, an exhaustive study by the California Treasurer’s Office found that “No State-backed financial institution designed to support the cannabis industry is feasible. All alternatives fail on both risk and financial grounds.”Banks handling marijuana proceeds risk asset seizures and employee prosecutions for enabling a federal crime.
Yet the quest to transform banking is gaining momentum. In 2016, the second US Public Bank, the Territorial Bank of American Samoa, opened with Federal Reserve approval. Hundreds of Public Banks thrive in Germany and Europe. The nascent Green New Deal movement dovetails with Public Banking. Recall the Great Depression when President Roosevelt tapped the publicly-owned Reconstruction Finance Corporation to finance New Deal infrastructure – without Congressional appropriations. While campaigning, now-Governor Newsom declared, “We must break Wall Street’s chokehold on state finances and develop our own state bank.”
Meanwhile, City Treasurer Cisneros actively pursues socially responsible investments. In 2018, the “Safe, Sound and Local” program allocated $80 million from the County’s Pooled Investment Fund to banks and credit unions to boost community lending. Other City agencies facilitate loans. For example, the Mayor’s Office of Community & Economic Development backs $86 million in home loans for lower-income residents. Such services will expand as support for a Public Bank grows.
Dr. Derek Kerr was a senior physician at Laguna Honda Hospital where he repeatedly exposed wrongdoing by the Department of Public Health. Contact: DerekOnVanNess@aol.com
February 2019
