The Los Angeles City Council Tuesday took a step toward creating a public bank by unanimously voting to authorize the Chief Legislative Analyst to seek contractors or consultants to develop a business plan for the bank.
“The opportunity to form a public bank in the city of L.A. is extremely important as the city begins to recover from the COVID-19 pandemic. This matter before us now just sets the ball in motion, retaining a consultant to advise us on the pros and cons and the particulars of creating such an institution,” Councilman Curren Price, who chairs the Economic Development and Jobs Committee, said before the vote Tuesday.
Public banks are intended to focus local investment by offering business loans and could be used to finance public supportive housing among other projects, according to proponents of the system.
“Instead of investing in affordable housing and health care and education, cities divert huge portions of their limited budget towards paying back loans with interest. A public bank will cut out Wall Street as a middleman, while serving as both a public depository for the city’s funds, as well as a public lender for the city’s borrowing needs,” said Trinity Tran, co-founder of Public Bank Los Angeles and the California Public Banking Alliance.
The vote comes nearly two years after former Council President Herb Wesson introduced a motion aimed at establishing the city’s first public banking institution. That motion — introduced on Oct. 11, 2019 — was seconded by Councilmen Mike Bonin and Paul Koretz and passed 14-0 on Dec. 4, 2019.
The council members proposed the motion soon after Gov. Gavin Newsom signed AB 857, which allows statewide establishment of public banks.
“A public bank is a huge and essential step to building back better from the COVID crisis and from the recession,” Bonin told City News Service on Monday.
“With a public bank, we can invest in our neighborhoods, promote affordable housing, help struggling small businesses, support a just transition to a green economy, and advance equity. This is an exciting opportunity to create a system that champions people and not special interests, and I appreciate the opportunity to discuss it with my friends, colleagues and neighbors.”
The motion advanced out of the Economic Development and Jobs Committee on May 11, with unanimous recommendations from the committee members. According to a report by the CLA, the city should seek voters’ approval before forming the bank, though it is not required by state law.
In 2018, before AB 857 was signed into law, L.A. voters denied the city the authority to create a public bank in a ballot measure, with 44% voting in favor of establishing a public bank and 56% opposing.
The motion approved Tuesday authorized the Chief Legislative Analyst to draft and release a request for proposals in 60 days to seek services needed to create a public bank serving Los Angeles. The selected consultant or subcontractor would have to have a history of working for and studying public banks or other mission-based financial institutions, as well as have experience facilitating community stakeholder consultations.
The public bank’s business operations would include:
— credit access for small businesses, particularly those owned by or employing residents in neighborhoods deemed socioeconomically disadvantaged;
— affordable and social housing finance;
— climate change mitigation and green energy investment, governance and accountability; and
— transformative credit programs for preserving and developing economic growth and worker and tenant ownership.
“We’re talking about this effort to establish a public bank for the fact that the current banking system has never truly worked for working families and specifically for communities of color. Underserved communities have long been exploited and ignored by traditional banking institutions and a lot of the products offered don’t necessarily speak to the needs of our community,” Councilman Kevin de León said.
“The need for public banking is clear, just look at some of the practices of major institutions and the enormous settlements just over racial discrimination.”
The CLA will also report back to the City Council on the timeline for establishing the public bank and necessary funding for studies into the project.
The idea for a public banking system gained national attention in 2016 after activists at the Dakota Access Pipeline called for divesting from large banks that financed portions of the project. North Dakota has had state-run banks for the last 100 years.
Assemblyman Miguel Santiago, D-Los Angeles, who supported AB 857, said at the time that public banking was the one controversial issue he’s seen where the public’s voice was effective enough to sway the legislature’s vote without a lobbyist’s involvement.
Tran said in 2019 that divesting from public banks could keep the money within local communities. The city could also partner with credit unions, and the bank would be a government nonprofit organization overseen by an independent board of directors and managed by professional bankers.
The California Bankers Association opposed AB 857’s signing, saying public banks are risky and that they could undermine the financing of future municipal projects. Earlier this year, the association also opposed AB 1177, or the California Public Banking Option Act, which the Los Angeles City Council voted to support.
The California Public Banking Option Act, which was signed into law by Newsom on Monday, will explore creating a “BankCal” program to be the first statewide program in the U.S. to offer residents access to a no-fee, no-penalty bank account, including a debit card, automatic bill pay, direct deposit capacity and an infrastructure for the account holder to build credit. The bill was co-authored and introduced by Santiago.
“We’re one step closer to public banking which fights the racial wealth gap and protects low-income people from predatory banking practices!” Santiago wrote on Twitter after Newsom signed the bill into law.