On Tuesday, voters will decide the fate of Charter Amendment B, ballot measure unanimously approved by city council which would open the door to a public bank of Los Angeles. It costs us nothing, and it doesn’t start a bank. It just removes one statutory hurdle, amending Section 104(g) of the City Charter which prohibits commercial investment by the city. With authority provided by the voters, the City will be able to pursue changes in City and State law needed to achieve the creation of a municipal bank. It’s a first, critical step for common sense financial independence for Los Angeles.
Los Angeles manages more than nine billion dollars in annual revenue collected from tax, fee and fine payers, more than the country of Iceland. The city maintains bank accounts with $11B in cash and short-term investments, and manages up to $45B in investments for pensions and other funds. That money is currently held in accounts at commercial banks, where it earns next to zero interest. The city paid over $394 million in transactional and management fees to these commercial banks in 2012 – 2013. Some of these banks have been downgraded by authorities for their risky or fraudulent practices. Many of the city’s investments finance direct harm to the public, including over $70M invested in tobacco companies alone. The firms who help manage these funds seek the highest possible fees for themselves, extracting the financial power of taxpayers to perpetuate bubbles in housing and capital markets, instead of economic development here at home.
Los Angeles recently disqualified Wells Fargo from providing banking services to the city, due to their non-admission-settlement of fraud charges from state and federal authorities. We should applaud the city council’s efforts to better discriminate between the financial institutions to which we entrust public funds, and to disqualify those banks which have shown themselves to be unworthy of the public trust. And we should support responsible investment ordinances to prevent public funds from financing harm to the people of the city and the world.
But in an era of consolidation, where banks have grown too-big-to-fail, any discerning city will soon run out of options for where to put its money. We can and must go a step further. We should learn from the example of municipalities and states which have founded their own public banks. North Dakota, a dyed-in-the-wool red state, has operated the country’s only public bank for nearly a century, and it is a great success. The German people operate a network of county-level public banks which provide unique regional benefits to their constituents, while out-performing their commercial competitors in reliability, security, growth and transparency. Now, we can proudly say that Los Angeles will be the first American city to vote directly on the founding of a public bank.
But what would a public bank look like, and why would we want to start one?
The Bank of Los Angeles would accept and insure city deposits, ensure liquidity, and provide all the banking and purchasing services the city requires. It would make prudent, targeted loans to the city itself, as well as to responsible parties in sectors of the local economy where capital would make a measurable difference in the lives of Angelenos. By recirculating our own money into local loans and investments, a public bank would grow the economy faster than if that same money were invested on Wall Street and paid in fees to brokers. No longer would new bridges, schools and power plants be subject to exorbitant interest paid to bondholders, which currently makes up about 50% of all spending on infrastructure. A public bank would finance public works at a fraction of the price of private capital.
The public bank would be answerable to an independent board of governors made up of residents of Los Angeles including civil servants, and experts in public finance, banking, affordable housing and climate change mitigation. It would follow a strict mandate to safeguard and grow the city’s assets through loans to local businesses and municipal entities. It would operate according to a mandate to act in the interest of the city and its people, and not for individual shareholders or executives. A bank whose employees are public servants, and whose mission is to measurably improve the lives of regular Angelenos.
Such an institution will require meticulous planning and strong leadership, as well as appropriate action from the City Council and Mayor’s office, in coordination with the state and its regulatory authorities. The challenges such an effort would face are justified by the benefits it would provide: to grow revenues and cut costs for city government, to safeguard LA’s assets in the event of another financial collapse, and to enable investment in Los Angeles by Los Angeles. We can and must take back this money power for the people of the city.
Los Angeles should vote Yes on Charter Amendment B to pave the way for the country’s first municipal public bank and declare independence from Wall Street.
Learn more about the movement to found a public bank at: http://publicbankla.org and http://californiapublicbankingalliance.org and also http://publicbanking.org