{"id":7895,"date":"2018-02-22T10:52:39","date_gmt":"2018-02-22T18:52:39","guid":{"rendered":"http:\/\/occupysf.net\/?p=7895"},"modified":"2018-02-22T10:52:39","modified_gmt":"2018-02-22T18:52:39","slug":"welcome-san-francisco-like-make-deposit","status":"publish","type":"post","link":"https:\/\/occupysf.net\/index.php\/2018\/02\/22\/welcome-san-francisco-like-make-deposit\/","title":{"rendered":"Welcome to San Francisco. Would You Like to Make a Deposit?"},"content":{"rendered":"
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A groundswell of interest in public banking has advocates pondering how city-owned banks could transform the way municipalities collect and spend their money.<\/h4>\n<\/div>\n
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STORY BY\u00a0<\/span>Oscar Perry Abello<\/a><\/span><\/p>\n

PUBLISHED ON\u00a0<\/span>Feb 19, 2018 (nextcity.org)<\/p>\n<\/div>\n

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It\u2019s no surprise that Malia Cohen worries about what local public dollars are doing. As a member of the San Francisco Board of Supervisors, the municipal legislative body, it\u2019s her job to know how, where and why the city\u2019s money is coming in and going out. But recently, Cohen has joined a growing number of public officials around the country who are wondering what happens in between \u2014 what happens when the money in the city coffers goes to sleep at night.<\/p>\n

In fiscal year 2017, the city of San Francisco took in an average of $508 million a month in revenues and put out $467 million a month in expenses. But in between, the banks that handle all that cash sometimes used public dollars in ways that, in the opinions of Cohen and others, contradict the reasons why that money is coming and going in the first place.<\/p>\n

\u201cThe existing banking and financial structures we\u2019re operating in don\u2019t always mirror our city\u2019s values,\u201d Cohen says. \u201cFor example, we had many people opposing the Dakota Access Pipeline. Many of the banks we bank with support the funding of this pipeline.\u201d<\/p>\n

For some cities, like Philadelphia, Chicago, Seattle and elsewhere,\u00a0the Wells Fargo fake accounts scandal was the last straw<\/a>. The bank\u2019s subsequent downgrade on its federal community reinvestment rating even forced New York, the nation\u2019s largest city, to initiate the process of\u00a0moving its deposits and banking services<\/a>away from Wells Fargo.<\/p>\n

But where else could all those dollars be kept other than in a large, private financial institution? State and local governments hold around $458 billion in deposits,\u00a0according to the Federal Reserve Bank of St. Louis<\/a>, while state and local pensions hold\u00a0$3.7 trillion in investments<\/a>. That\u2019s a lot of money and a lot of daily transactions, which would overwhelm most community banks in most cities. For a solution, Cohen and others have turned to what seems like an unlikely place for big city legislators: the windswept plains of North Dakota. The state is home to the the Bank of North Dakota, the nation\u2019s only public bank, a government-owned deposit-taking institution.<\/p>\n

As Cohen and others see it, modeling a city-owned bank after the Bank of North Dakota would go beyond protecting public dollars from being used in ways that contradict public values and priorities \u2014 it could also help utilize those dollars as a powerful tool to advance those values and priorities. There are huge risks that need to be addressed and big questions to resolve along the way, but the urgency and energy around the public bank idea have never been stronger or more widespread, with public bank proposals at various stages in San Francisco, Oakland, Seattle, Los Angeles, Santa Fe, Washington D.C. and Philadelphia.<\/p>\n

Several states, most notably New Jersey and Michigan, are also moving public bank proposals forward. New Jersey Governor Phil Murphy, new to office and himself a former Goldman Sachs investment banker,\u00a0campaigned on creating a public bank<\/a>.<\/p>\n

\u201cWe would have more autonomy and more say in how our city resources are invested. San Francisco is one of the hottest real estate markets in the world but we\u2019ve got an affordability crisis. Why are we not investing our dollars to solve that?\u201d asks Cohen, who first heard about public banks during her 2010 campaign for office, when an opponent brought it up first. \u201cWhat I\u2019m also envisioning is how a municipal bank could better support small businesses, financing small businesses run by minorities, women, veterans \u2014 those who don\u2019t have access to the same level of capital.\u201d<\/p>\n

A BANKER\u2019S BANK<\/h2>\n

Predominantly rural North Dakota may seem an unlikely place for cities to look for a solution, but there are some clear parallels between the Bank of North Dakota\u2019s origins and the circumstances facing cities today. When the bank was founded in 1919, North Dakota farmers had been frustrated with the lending terms given to them by banks based in Minneapolis and Chicago, which they felt were too onerous and even predatory.<\/p>\n

In today\u2019s San Francisco, Cohen sees affordable housing developers struggling to access loans at affordable interest rates that would allow them to build or preserve more affordable housing, and at deeper levels of affordability. She also sees small businesses \u2014 both startups and well-established enterprises \u2014 struggling to get access to non-predatory credit that would enable them to grow and hire more employees.<\/p>\n

At the California Reinvestment Coalition, the state\u2019s leading financial watchdog group, executive director Paulina Gonzalez spends her days battling big banks, but she has similar hopes for a public bank.<\/p>\n

\u201cThere\u2019s an opportunity for cities,\u201d Gonzalez says. \u201cMaybe a public bank can provide support to local small businesses at lower interest rates, or provide support for affordable housing in a way that responds to community needs.\u201d<\/p>\n

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With a budget appropriation for startup capital of $2 million, the equivalent of $28 million in today\u2019s dollars adjusted for inflation, the North Dakota state legislature created the Bank of North Dakota, which opened its doors on July 28, 1919. How to raise startup capital is one of the big questions facing public bank advocates today. Banking startups can choose whether to be state-chartered (like the Bank of North Dakota) or federally-chartered; either way, regulators want to see a certain amount of startup capital based on the projected startup size of the bank.<\/p>\n

\u201cIf the bank takes on deposits, we must be certain we can adequately fund the reserves necessary so that we can show we\u2019re a responsible lender, modeling good behavior,\u201d says Cohen, who also happens to be a trustee of one of the city\u2019s pension funds.<\/p>\n

Regulators will also want to see a business plan.<\/p>\n

From its very beginning, the Bank of North Dakota\u2019s business plan was not to compete directly with private banks and credit unions, but rather to complement them. Its primary source of deposits is not individuals or businesses, but the state\u2019s tax payments, fees and pension funds, as well as deposits from city and county government entities in North Dakota. Today\u2019s public bank advocates have to consider whether a new public bank, starting a hundred years after North Dakota\u2019s, can feasibly take over all revenue streams at once or whether it should carve out public revenues and deposits one slice at a time to gradually grow the public bank.<\/p>\n

As part of its non-compete model, the Bank of North Dakota doesn\u2019t have branch offices and doesn\u2019t offer ATM cards, debit cards, credit cards or online bill pay. If individuals or businesses want to open an account, or make a deposit or withdrawal, they have to come to the bank\u2019s headquarters in Bismarck. Only North Dakota residents and businesses may open a checking or savings account, or purchase a certificate of deposit at the Bank of North Dakota.<\/p>\n

Despite what seems like a limited business model, the Bank of North Dakota currently has around\u00a0$4.9 billion in deposits and $7.3 billion in assets<\/a>\u00a0\u2014 including $4.8 billion in loans. The bank earned a record $136 million in net income in 2016, and hasn\u2019t posted a net income loss going back to at least 1971,\u00a0according to the bank\u2019s 2016 annual report<\/a>. Over the past few decades, the bank typically paid between $30 to $50 million a year back into the state\u2019s general budget \u2014 something that could be a huge boost to chronically underfunded city governments.<\/p>\n

Based on population size \u2014 approximately 758,000 in North Dakota and 865,000 in San Francisco \u2014 a San Francisco public bank could eventually be as large and financially profitable as North Dakota\u2019s, if not more so, given the city\u2019s overall wealthier population and higher property values.<\/p>\n

In its lending strategy, the Bank of North Dakota also seeks ways to complement private banks instead of competing with them. It does so mainly by serving as a sort of banker\u2019s bank in a couple of different ways.<\/p>\n

Business loans make up around 40 percent of the Bank of North Dakota\u2019s lending portfolio and about half of those loans are so-called participation loans. Much of the bank\u2019s farm loans are also participation loans. In a participation loan, a client comes to a private bank asking for a loan that turns out to be bigger than what the bank is able to provide at the time of the request. Banking regulators don\u2019t like to see banks be \u201coverexposed\u201d to any one client \u2014 that\u2019s putting too many loan eggs into one client\u2019s basket. In North Dakota, when faced with this situation, the private bank can approve a loan to cover part of the client\u2019s request, then it can ask to the Bank of North Dakota to make a loan covering the rest.<\/p>\n

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With the participation loan model, the business or farmer is less likely to seek capital and services from a larger, perhaps national bank. Thanks to the Bank of North Dakota, local North Dakota banks are better positioned to keep relationships with clients as their businesses grow, which most likely keeps those businesses\u2019 deposits local while still providing them access to all the capital they need.<\/p>\n

The Bank of North Dakota also makes direct investments into local banks\u2014it currently holds around $249 million in local bank stock shares, helping to meet a crucial need for smaller banks, which often have a tougher time raising the level of capital required by federal regulators to remain in operation.<\/p>\n

It\u2019s largely because of the Bank of North Dakota\u2019s participation loans and local bank investments that North Dakota has\u00a0more banks and credit unions per capital than any other state<\/a>, says Stacy Mitchell, co-director of the think tank Institute for Local Self-Reliance.<\/p>\n

\u201cIt\u2019s fascinating to me because it\u2019s a public solution that creates a much more robust cadre of capitalist enterprises,\u201d Mitchell says. \u201cIn terms of the functionality, I don\u2019t see a particular reason this model wouldn\u2019t adapt to an urban environment.\u201d<\/p>\n

There are some parts of the Bank of North Dakota model that Mitchell doesn\u2019t think would transfer to a more politically tumultuous, big-city environment. For example, while the Bank of North Dakota is staffed with professional bankers with backgrounds and experience in running private banks and underwriting loans, its board consists of only three people, one of whom is the Governor of North Dakota. The other two are the state\u2019s Attorney General and the head of the Department of Agriculture, who the governor appoints.<\/p>\n

\u201cIt\u2019s a very small board, and it has worked in favor of North Dakota, which has a fairly high level of integrity in its government,\u201d Mitchell says. \u201cIt\u2019s a small place and it seems to have worked out fine, but I look at the structure and it doesn\u2019t seem robust enough.\u201d<\/p>\n

For San Francisco and other places, governance is a huge question. In a place like New Jersey, it\u2019s concerning to an almost comic degree, with \u201cBridgegate<\/a>\u201d being just the latest highly visible example of what lengths politicians are willing to go to spite each other.<\/p>\n

\u201cYou have to very carefully circumscribe what the bank is allowed to do and who is on the board,\u201d says Ellen Hodgson Brown, founder and chair of the Public Banking Institute, a nonprofit supporting public banking advocates around the country. \u201cYou don\u2019t want politicians deciding who gets the loans.\u201d<\/p>\n

The banker\u2019s bank model can help insulate a public bank from getting too involved with politics, according to Hodgson Brown. \u201cLet the local banks deal directly with the customers,\u201d she says.<\/p>\n

\u201cENHANCE WHAT WE\u2019RE ALREADY DOING\u201d<\/h2>\n

Cities don\u2019t have to go to North Dakota to see if it\u2019s possible for a public sector entity to make loans while keeping politicians at arms\u2019 length.<\/p>\n

Local and state housing finance agencies everywhere already issue tax-exempt bonds to finance affordable housing projects, carefully underwriting the projects and developers who must eventually pay back those funds to investors. Housing finance agencies can\u2019t play around with politics because they need to be able to keep up their low risk ratings or else lose the interest of the Wall Street types that invest in their bonds on behalf of future retirees, pensioners and others.<\/p>\n

Depending on the city, the local community development agency may also be underwriting loans on a regular basis. The San Francisco Mayor\u2019s Office of Housing and Community Development technically has a $1.4 billion affordable housing loan portfolio, for which it evaluates the finances of developers and the projects they propose, scrutinizing construction cost estimates and other project documents for possible fraud and other concerns. It doesn\u2019t always work perfectly, but they underwrite loans on a regular basis without politicians getting involved in the day-to-day transactions.<\/p>\n

Getting away with poor cost estimates in affordable housing finance in San Francisco would be hard, says Rebecca Foster, executive director of the San Francisco Housing Accelerator Fund, because the Mayor\u2019s Office of Housing and Community Development (MOHCD) has a lot of layers of review built into their systems and loan documents. The Fund works closely with MOHCD\u2019s underwriting, construction oversight and loan administration teams, and for rehab and new construction loans, the city\u2019s construction manager as well as the developer\u2019s construction manager both must review and sign off on a construction contract. In its loan agreements, the city limits administrative and overhead costs and requires that these costs are clearly line-itemed.<\/p>\n

\u201cIf governments like the city or even the state could figure out more effectively how to link the investments of some of their deposits, even a very small portion \u2026 to local activities they support, that could be incredibly powerful,\u201d Foster says.<\/p>\n

On a smaller scale, San Francisco also offers down payment assistance loans to first-time, low-to-moderate income homebuyers. It currently has around 1,200 such loans outstanding in its portfolio, worth around $82 million. It also has a revolving loan fund for small business loans, currently administered by a nonprofit.<\/p>\n

\u201cThe public bank would be able to enhance what we\u2019re already doing,\u201d Cohen says. \u201cFor example, our down payment assistance program has some limitations, and this could help it become more robust.\u201d<\/p>\n

In New Jersey, public banking advocacy efforts have been coordinated by environmentalists Walt McRee and Joan Bartl, both also working under the banner of the Public Banking Institute. They met future gubernatorial candidate Phil Murphy at a picnic of the Princeton Community Democratic Organization before he announced his run. \u201cBecause it\u2019s what we talk about, we asked if he had heard about it,\u201d McRee says.<\/p>\n

\"\"San Francisco Supervisor Malia Cohen, seen here in a 2016 photo, is one of a growing number of city officials examining how public banks can benefit local governments. (AP Photo\/Jeff Chiu)<\/em><\/p>\n<\/div>\n

Not only had Murphy already heard about the Bank of North Dakota, but as a former U.S. Ambassador to Germany, he had learned about that\u00a0country\u2019s network of local public banks<\/a>, which have been around for hundreds of years.<\/p>\n

Since then, McRee and Bartl have been touring the state, talking with anyone who is interested in speaking with them, from various labor groups to professional networks to mayors and local council members. They\u2019ve been hoping to prime allies in anticipation of huge push back from the banking lobby if Murphy moves forward with his campaign promises around public banking. \u201cThe status quo has a momentum,\u201d McRee adds.<\/p>\n

Their efforts are already paying off. Last month, Murphy\u2019s allies in the New Jersey legislature\u00a0introduced a bill<\/a>\u00a0defining the scope of a public bank and establishing a process to establish a board of directors for a public bank.<\/p>\n

KEEPING THE BIGGER PICTURE IN MIND<\/h2>\n

Last year, Cohen and her colleague Sandra Fewer requested\u00a0an analysis on \u201ccommunity responsive banking<\/a>\u201d with a focus on creating a municipal bank from the city\u2019s Budget & Legislative Analyst\u2019s Office. A key step in moving the public banking process forward, the analysis includes a re-assessment by city attorneys that the city does have the legal authority to charter a banking entity, which contradicts earlier city attorney findings from 2011.<\/p>\n

\u201cThe key thing I took away from the report was this is doable,\u201d Cohen says. \u201cThere\u2019s a lot of moving parts in our financial banking and payroll system, but San Francisco has a lot of talent, and the legal framework already exists.\u201d<\/p>\n

It would also be cheaper than what the city is already doing. The community responsive banking analysis notes that the city pays $864,000 a year in fees just for short-term cash management accounts. The city has nearly 200 short-term cash management accounts, one each at Union Bank and U.S. Bank, and the rest with Bank of America, with an average account balance of around $223 million. Meanwhile, Citibank manages the city\u2019s $8.3 billion in longer-term investments for an annual fee of $186,000, in addition to any broker and dealer fees for trading in stocks, bonds and other investments.<\/p>\n

Thanks to the interest that the Bank of North Dakota earns on its lending and other assets, the state of North Dakota pays nothing for the same services \u2014 in fact, the bank more often pays the state in those chunks of $30 to $50 million a year, if it\u2019s needed.<\/p>\n

The Office of San Francisco Treasurer Jos\u00e9 Cisneros just launched the next phase of the public bank formation process, announcing the members of a Municipal Bank Feasibility Task Force.<\/p>\n<\/div>\n<\/div>\n<\/div>\n

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\u201cIt\u2019s my goal to have a thoughtful directive from the task force by the summertime, so we can move forward in the fall to introduce legislation to get this incorporated by the end of this year,\u201d Cohen says.<\/p>\n

The 15 members include representatives from community banking, a credit union, the San Francisco Chamber of Commerce, the California State Treasurer\u2019s Office, the head of the Mayor\u2019s Office of Housing and Community Development, and Gonzalez.<\/p>\n

\u201cOur history is in the reinvestment work, looking at banks across the country,\u201d says Gonzalez. \u201cIn this case, it\u2019s about tax dollars. There\u2019s a real interest in cities and states to think about what can they do to ensure that there\u2019s a banking model in place that is as able to reinvest tax dollars back into communities.\u201d<\/p>\n

At the same time, Gonzalez\u2019s work battling the big banks is a reminder that, no matter how much of a difference a public bank might make, there\u2019s a much bigger picture: the nearly\u00a0$12 trillion in deposits<\/a>\u00a0held at all commercial banks. A sudden smattering of new public banks across the country isn\u2019t going to suddenly stop big banks from using those deposits to finance and profit from projects that don\u2019t live up to the values of all the millions of people to whom those deposits belong.<\/p>\n

\u201cWe have to get the banking system and all the individual actors in it to hew to our standards as depositors, municipalities, companies and nonprofits because it will be very hard to overwhelm what that massive-scale system is doing with anything else,\u201d says Kat Taylor, co-founder of Oakland-based Beneficial State Bank and fellow task force member.<\/p>\n

That said, Taylor, whose husband and fellow co-founder is Trump impeachment campaigner Tom Steyer, has a lot of appreciation for the sentiment and energy behind public bank initiatives around the country. In her view, because of the privileges the public bestows on the banking system, such as federal deposit insurance, banks are essentially quasi-public institutions and should operate as such. But for many reasons, most of us forget that or never even get to understand why that is.<\/p>\n

This sudden wave of public bank legislation and activity is a sign to Taylor that many are starting to remember.<\/p>\n

\u201cI think this is the sign of the sleeping giant, the American populace, taking back their agency and accountability for the banking system,\u201d Taylor says. \u201cIt belongs to all of us.<\/p>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

A groundswell of interest in public banking has advocates pondering how city-owned banks could transform the way municipalities collect and spend their money. STORY BY\u00a0Oscar Perry Abello PUBLISHED ON\u00a0Feb 19, 2018 (nextcity.org) It\u2019s no surprise that Malia Cohen worries about what local public dollars are doing. As a member of… Continue reading → <\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/occupysf.net\/index.php\/wp-json\/wp\/v2\/posts\/7895"}],"collection":[{"href":"https:\/\/occupysf.net\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/occupysf.net\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/occupysf.net\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/occupysf.net\/index.php\/wp-json\/wp\/v2\/comments?post=7895"}],"version-history":[{"count":1,"href":"https:\/\/occupysf.net\/index.php\/wp-json\/wp\/v2\/posts\/7895\/revisions"}],"predecessor-version":[{"id":7896,"href":"https:\/\/occupysf.net\/index.php\/wp-json\/wp\/v2\/posts\/7895\/revisions\/7896"}],"wp:attachment":[{"href":"https:\/\/occupysf.net\/index.php\/wp-json\/wp\/v2\/media?parent=7895"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/occupysf.net\/index.php\/wp-json\/wp\/v2\/categories?post=7895"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/occupysf.net\/index.php\/wp-json\/wp\/v2\/tags?post=7895"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}