California Legalizes Public Banking
Tuesday, October 8, 2019
DHARNA NOOR: It’s The Real News. I’m Dharna Noor.
California just made it legal for municipalities to start public banks, and LA City Council just said they’re going to propose creating one. Last week, Governor Gavin Newsom signed the state’s public banking act, which allows city and county officials to sponsor public banks. Unlike private banks, which are corporations and are therefore obligated to maximize profits, supporters say public banks could be tied to policy to make room to invest in things like affordable housing and renewable energy and help smaller businesses by offering significantly lower interest rates.
The legislation was backed by a majority of California lawmakers, environmental justice groups, labor unions, and the Democratic Party; but it had powerful opponents like Wall Street. With that big hurdle cleared on Monday, Los Angeles’ city council president said he’ll be proposing establishing the city’s first public bank.
Now joining me to discuss this is David Jette, who is the co-founder and legislative director of Public Bank LA. Thanks so much for being here, David.
DAVID JETTE: Thank you very much for having me.
DHARNA NOOR: Could you just start by explaining how exactly this bill, it’s Assembly Bill 857, works exactly? How did this get proposed in the first place and what exactly does it allow California municipalities to do?
DAVID JETTE: The bill itself was put forward by Miguel Santiago and David Chiu of Los Angeles and San Francisco, respectively. These two legislators were brave enough to sign onto a bill that had been developed by the California Public Banking Alliance, a coalition of city and county-level public bank advocacy groups, grassroots groups, like Public Bank LA here in LA and East Bay Public Bank and SF Public Bank in San Francisco. This was a piece of legislation that we devised as a way to get past some of the hurdles, especially the legal hurdles, but also some of the sort of classification and registration issues of public banks that we were finding in our city efforts.
When a city like Los Angeles looks into whether or not they can start a bank like we did here in LA, there are limitations on city governments. There are limitations on banks themselves that caused certain conflicts in law and AB 857 clears some of those paths. It defines public banks as purely publicly-owned entities, not as public private partnerships or anything like that. It also limits their activities to be for a specific social purpose and in a way that ensures that they’re good stewards of public money. It sets a framework for what cities should do and can do when it comes to starting their own banks.
DHARNA NOOR: Because of that sort of Democratic control, it makes a lot of sense that you all had a pretty broad coalition that backed this effort, but I’d also love if you could talk a bit about the opposition that y’all faced. I hear that, obviously, Wall Street isn’t thrilled that this passed and then in the spring, a spokesperson for the California Banking Association said that this bill was misguided and that quote, “With nearly 200 banks serving the state of California, there is much choice in the current marketplace. California banks are also tremendous partners to the many community organizations that operate in the regions where they do business.”
When the bill was in committee, the California Association of County Treasurers and Tax Collectors came out against it, too. They said, quote, “This legislation creates a false sense of hope for proponents who have been repeatedly advised that County pools cannot be used for these purposes, and that critical statutory protections of local dollars cannot be lightly dismissed.” Could you just respond briefly to these critiques that this was misguided or unnecessary in some way?
DAVID JETTE: Yeah. It’s always funny when people bring forward an argument that we should not have a public option in banking or other areas like healthcare because there is already so many choices. There are so many choices already. It’s pretty clear when you do the research that there are large numbers of folks in California who are unbanked or underbanked, meaning they don’t have access or affordable access to basic financial services that a lot of people do enjoy; services like being able to deposit their paycheck in a bank account without having to pay a fee, which is effectively a tax on the use of money itself. A lot of debt serves as a tax on the use of money itself. And that tax is levied by a private entity, usually a bank or some kind of investor who’s charging for access to credit and to money itself.
Those taxes lead to billion-dollar profits, multi-million- or billion-dollar bonuses for executives and major shareholders of banks. We believe that money is a public utility. It’s something that has value because we all give it value and because we can pay our taxes with it. That means that the root of the meaning of money really comes to the fore when you’re talking about the government’s money. When we pay taxes, we put that money into a bank account and once it goes there, the bank can use it to leverage all of their assets to make loans, and those loans can go into any number of investments, but they tend to go into the most profitable sectors.
A public bank will allow the government to choose a bank account that will increase investment here in Los Angeles in the case of our city and all over California for banks formed under absolutely 857. That is not a choice they currently have. Right now their choices are banks which violate federal law, in the case of Wells Fargo, or state wage theft laws, in the case of JP Morgan Chase. When assessing their options, cities should take those things into account. We should not give public business to entities which violate the law or fund businesses or industries which extract the hard-earned dollars of working people or resources that can lead to environmental catastrophe.
DHARNA NOOR: Talk about what kinds of investments you would like to see, both you, specifically in Los Angeles, and then across the entire state. What kinds of investments are possible now that you don’t think would have been possible under a Wells Fargo or a JP Morgan?
DAVID JETTE: There’s a lot of ideas. But in its heart, we need to… When rolling out an institution as important as a bank of this scale, one that we mean to pass on for many generations into the future, we want to make sure that we do it right and that we keep things focused on what is possible right away. I wish that we could just decarbonize our economy with public bank overnight, but the reality is we’re probably going to start a bank that lowers the borrowing costs for the city as a first step, right? Refinancing debt is one way to lower the money costs that the city has, which can raise revenues for cities or lower expenses and lower that tax burden for working people. In a much more forward step, sort of a front-footed way, we absolutely could be increasing lending to affordable housing projects here in the city.
Obviously, we have a homelessness crisis in Los Angeles County and City. And there’s a lot of reasons for it, but lack of affordable credit for especially programs that wouldn’t just put up housing that would make money for developers, but housing that could be owned and controlled by its tenants or inure to the benefit of those local communities. Banks don’t like lending to those projects quite as much because there isn’t some large developer that they can underwrite in order to lend that money. A public bank can look at its people as a worthy borrower. It has a lot more touch points with regular citizens and with local institutions like neighborhood councils and things like that, where it can be a lot more imaginative in the lending structures that can emerge. When you’re talking about an affordable housing project, you could have a community land trust, borrow on a 50-year mortgage with a very, very low rate, with the explicit purpose of keeping rents low. These are the kinds of financial structures that a public bank makes possible.
DHARNA NOOR: It sounds like the sort of two big priorities that have come out of this movement are that move toward more affordable housing in the face of such a huge homelessness crisis and then also financing the transition away from fossil fuels. That also seems like kind of the other biggest priority that’s been mentioned the most, which makes sense. Because these kinds of public banks, like nonprofits, are accountable to boards. The only public bank in the country right now is the Bank of North Dakota, which was established way back in 1919. And in 2016, of course, that bank lent millions of dollars to local law enforcement to fund their infamous violent response to protests around the Standing Rock Reservation against the Dakota Access Pipeline. Talk about how Californians can hold these public banks accountable and really make sure that the things that are being financed are things that benefit most people in California and, more broadly, the nation and the world.
DAVID JETTE: The Bank of North Dakota is obviously a very interesting case and one that we look to very frequently in terms of finding an American perspective on what a public bank might look like. We also, when we set out on helping to craft AB 857 and supporting it on its way through the legislature, was to prevent the state and, frankly, some of the larger, let’s say executive offices in the state, from capturing that process and trying to make this purely a state bank, one that’s ruled by a particular board of appointed officials or even the governor them self, the way that it would be in North Dakota. We wanted local and municipal public banks because we think they’re going to be a lot more responsive to democracy and to the needs of regular people. City Hall deals in potholes, they deal in property taxes. They are necessarily on the ground and, in the case of LA, on a lot of frontline communities in terms of climate change and economic inequality.
Our job through the writing of the bill was to make sure that we stayed independent of those efforts and we did. There were no paid lobbyists on our side pushing this through. We never received any advice or money from real estate developers or any kind of energy company or even nonprofit financials. This is a grassroots effort and it has to stay that way. We are going to work really hard here in LA to make sure that the selection process for the experts that help formulate a business plan are chosen from our community as much as possible and have the best interests of that community at heart. That’s going to go all the way through the selection of executives, board members and the loan portfolio that this bank eventually adopts. That credit policy needs to be politicized; it needs to be put in front of everyday people. That’s how you’re going to keep it accountable, not through rules or through choosing the perfect bank president, but by exposing those inner workings on a constant basis to sunshine.
DHARNA NOOR: Obviously, you’re working on creating a public bank in Los Angeles. LA Assembly member Miguel Santiago was a joint author of the state’s Public Banking Act. On Monday, LA City Council President Herb Wesson said that he will be filing a motion to establish a public bank in LA. I know that there’s also similar efforts underway in San Francisco for instance, and that this legislation removes a big hurdle for these municipalities. What actually has to happen now to create these public banks, and what else are you expecting to see along the way in terms of pushback?
DAVID JETTE: Here in LA, our city council president Herb Wesson just announced that the city will consider and hopefully pass an RFQ, a request for qualifications, for sort of a quarterback in the city council’s office to lead what will probably be the formation of a business plan and an application to the Department of Business Oversight, which is the bank regulator here in California. We’re going to need to get that plan approved by the city council and it will probably go through an extensive public review process, which is the process that I mentioned that we should all be showing up for, to demand that the priorities that we know need to be built into this bank are in fact written into its founding documents and its application to regulators. From there, that regulator is going to have to look at that application and determine whether it’s satisfactory, another process that also should be looked at closely by the people.
Eventually, the FDIC will probably have to take a look at this and, obviously, that puts an extra weight, as if we didn’t need any more, on the outcome of the presidential election. This is tied in with all the same efforts for affordable housing, for racial justice, for climate justice, as all of us are working for. We need to make sure that public banks are on the lips of everyone that is out there talking to voters and to activists to make sure they know this is coming down the pike, especially if they live in California. If they live elsewhere, have your local legislators talk to Assembly Member Chiu and Santiago, have them call us and get a bill like AB 857 moving, because in the next five years, we’re going to see some of these [inaudible 00:00:14:06] to follow. We hope that we do well for you so that you have something to copy and can succeed.
DHARNA NOOR: I guess I want to finish up by asking you about how you think that this could sort of lay the groundwork for other places? New York City has a public bank coalition, they’re pushing for similar kinds of legislation. There’s other sort of coalitions that have popped up in D.C. and Seattle. How do you hope that this could influence the fight for public banks outside of California?
DAVID JETTE: A win is always good for everyone on this side, and victory has many mothers. I think just the legitimization of public banking in this century is a huge step. The fact that we’ve got through the banking and finance committee in two houses of a major state legislature, the local government committees, all of these experts, right? Legislative experts signed off and said that what we’re doing is prudent. Over time, I think that the treasurers are going to come around and see that our proposals are in the best interest of the public and they’re working for that same thing. Eventually, even some members of the California Banking Association are going to see that increased economic growth is good for their businesses.
Frankly, this bill limits public banks from competing with them too much, so they’re going to have a pretty valuable new partner, especially those credit unions and community banks that actually care about their neighborhoods and the places where their employees and their customers live. They’re going to have a new partner that they can work with that doesn’t want to steal their customers and wants their local economies to grow. Eventually, they’ll be for it and eventually, eventually, they’ll think it was always meant to be and people will act like, well, of course public banks exist. That only comes from everyone kind of working together and trying to find realistic ways forward that can be sustainable.
DHARNA NOOR: Yeah, can’t wait until the day that the California Banking Association says this was their idea all along.
DAVID JETTE: Yeah.
DHARNA NOOR: As you continue to fight for the creation of the public bank in Los Angeles and we continue to see how that legislation unfolds. Now that it passed, we’d love to talk to you again, David Jette, co-founder and legislative director of Public Bank LA. Thanks so much for being here.
DAVID JETTE: Thanks to you.
DHARNA NOOR: Thank you for joining us on The Real News Network.