Dueling CA columnists pan and praise public banking

This opinion piece, “Myths about Wall Street Banks,” is author and public banking activist Rick Girling’s reply to an article critical of the California public banking movement entitled “Myths about LA’s Public Banks,” by Jack Humphreville.

Both essays are worth reading, as they reiterate and in some cases respond to a lot of the common criticisms lobbed at public banks, including cost, risk, cronyism, and lack of public support.

Girling doesn’t answer every argument Humphreville raises, but easily could. For instance, the idea that Measure B’s defeat last November at the ballot box means that public banks do not enjoy public support is belied by the more than 100 organizations and more than one dozen city councils that have gone on to endorse the current state bill, AB 857. In fact, any campaign that, like Measure B, starts off with no money and very little time to explain a very new and somewhat confusing idea, and then wins 44% of the electorate over, should really look at that election as an outreach opportunity rather than a defeat, which is just what the California Public Banking Alliance has done.

AB 857 is going to return to committee, Assembly, and Senate deliberation later in August, and the expectation is that if it passes in the legislature it will be signed into law by Governor Gavin Newsom. From then it’s up to public banking advocates and city or county government to take the next steps toward devising economically viable plans for public banks. Those of us who are working on public banking across the country are hopeful for the bill, and optimistic that we’ll have some excellent models to work from before too long.

Public bank potential rests on building a movement

A little-known fact, especially in the US: a quarter of all banks are state-owned public banks. Yet not all of them operate effectively, equitably, or in response to the needs of the people they ostensibly serve.

The potential of public banks to work for the benefit of cooperatives, small business, equitable economic development, and fair trade is not always realized, says Thomas Marois, Senior Lecturer in Development Studies at University of London, in this video.

We need to build and maintain a popular movement to keep the public in public banking and forestall problems with corruption and bad management. That way we can have a banking system that can support businesses and farmers during down times as well as good, lend for socially progressive and environmental purposes, and privilege the common good over simply focusing on profit.

Marois is right to point out that access to money and credit can’t be left to the private sector, and that civil society has to push for public banks that are small d-democratic and committed to working for the common good. That means that organizers have to overcome the public’s gut-level cynicism about the competence and honesty of government and possible reluctance to expend the time and energy to play even a small role in ensuring that public banks function properly. It’s therefore exciting to see how California activists have been bringing local campaigns and different groups on board to endorse state bill AB 857, which would allow cities and counties to set up their own public banks. We hope that broad support helps ensure favorable reports out from Assembly committees this week!

Washington State considers a state trust for infrastructure

Washington State Senator Bob Hasegawa, a long-time advocate for public banking, has filed a bill, SB 5949, that would create a public state investment trust and a commission to oversee it. He filed a similar bill in the last session. The bill’s focus on a public-bank-style mechanism for funding infrastructure is similar to our own Massachusetts bill, filed in the House as HD426 by Rep. Mike Connolly , and in the Senate as SD861 by Sen. Jamie Eldridge.

The bill text notes that there are “significant public infrastructure and program needs…that are unmet” in the state, and that the cost of bonded debt is roughly twice as much as the amount borrowed. A public lending institution would allow those interest payments to come back to the state, producing sustainable and lower cost revenue for the state without a tax increase, and expanding financing capacity for needed projects.

The bill is bolstered by a positive report issued in December by University of Washington’s Evans School of Public Policy and Governance, which concluded that: “Improvements can be achieved by creating a state-chartered public cooperative bank.”

The Evans School is working on a business plan for the bank as well, which will be out later this year.

You can watch the bill’s hearing before the Washington state Senate Financial Institutions committee here; the testimony starts about 6 minutes in with an explanation of the trust’s structure, deposits, and oversight. Sen. Hasagawa, in his remarks, notes that the support for the bill so far ha s been driven by the need to address infrastructure, and its cooperative nature, and while the public bank concept is still new for some people, it’s a strategy used around the world. “It’s a true game changer for the state to get something like this going…If we can retain control over our own tax dollars and decide how we want to spend it for economic development purposes within our own state and make money in the process… man, I don’t really see a downside to it.”

The comments against the bill, by the Washington Bankers Association and representatives of the state community bankers association, the county treasurer’s association, and the pension fund, highlight concerns—it’s no surprise they testified against a public bank, but it’s important for pro-public bank advocates to address these concerns, as some are also concerns for taxpayers and voters:

  • Will there be political influence over the bank?
  • Will this bank represent a real savings for the state once start-up and operational costs are factored in?
  • What about risk?
  • What if state agencies do not want to deposit funds in the bank? (Note that while this is required in the Washington legislation, it is not part of the Massachusetts bill.)

Clearly we’ll be working to answer these questions in Massachusetts too. (Of course, political influence on a public bank begs the question of how much influence the banking industry has over government, via lobbying, campaign donations, and the revolving door.) We are confident that a no-executive bonuses, no-advertising for commercial business public bank can be run economically. As for risk, we’ve found that municipal bond defaults here are extremely rare.

An informal survey finds interest in infrastructure

David Art, publisher of MASSterList, an extremely useful daily digest of Massachusetts political and policy news, events, and jobs, recently sent out a survey to readers, and among the questions was one on priorities for the Baker administration. Art notes…

“We thought it interesting that nearly 70 percent of our respondents put Infrastructure investment at the top of the issues the Governor should focus on in 2019, but the Governor’s recent inaugural address only references an $8 billion investment in MBTA infrastructure – not roads and bridges. Other issues you rated highly were healthcare cost (60%); The MBTA (54%); the Opioid epidemic (30%); legalized marijuana (30%) and our “Other” (26%) – (which had many write-ins for Education)… We took note of your suggestions for future MASSterList events with Infrastructure at the top at 60% followed by Education (54%), Marijuana (28%), and Gambling (17%).”

Bold-type emphases are the author’s.

Maybe we shouldn’t be surprised at the response. Infrastructure relates to concerns about growth and congestion, private and public transportation, and climate resilience, as well as overall quality of life and growing income inequality, especially for those who are squeezed out of the market for walkable, high-service urban and suburban neighborhoods. We’ll be on the watch for the infrastructure-related events Art refers to as well.

Cash first!

Here are the best paragraphs from a piece by Neil Swidey in the Boston Sunday Globe magazine encouraging You The Consumer to pay with cash instead of credit or debit cards.  He’s taking aim at an argument that friends of the financial industry use to encourage even more widespread use of electronic payment methods: the notion that since criminal enterprises operate more or less on a cash-only basis, less folding money means less crime. He writes:

Harvard economists Larry Summers and Ken Rogoff have even called for the elimination of big bills like the US $100 and 500-euro notes, to reduce crime. Rogoff wrote a book to make his case, calling it The Curse of Cash.

But as Bloomberg columnist Elaine Ou persuasively countered, “the crime-fighting case against cash is overstated.” She cited a risk assessment by the British government that found the big banks and major accounting and law firms posed a much higher risk of facilitating the movement of dirty money than did cash, something the Panama Papers tax shelter scandal made abundantly clear. “If we’re going to cite unlawful transactions as a rationale for banning cash,” she wrote, “it only makes sense to ban banks and accounting firms first.”

Letter to the Editor: Financing is a never-ending challenge, public banking offers a solution

Charles Grigsby, a member of the H3543 working group and one of the advisory group members from the original Massachusetts public bank study, wrote this letter to the Jamaica Plain Gazette.

The Q and A in the June 8th edition of the JP Gazette with Representative Sanchez and attorney Elugardo was an excellent example of well informed positions on  many of the challenges facing our great state.

With one exception.

Neither candidate spoke of the never-ending challenge of finding innovative ways of financing all the needs to be met.

As just one example, the City of Boston, with an AAA credit rating reports that  it expects to pay 5 % in interest expense on it’s bond issues, or a total of $67,444,486. in FY 29 alone. Other cities and towns in Mass are facing similar challenges.

Yet there is a bill, H3543 currently in the legislature’s Joint Committee on Financial Services that would establish a state owned bank, with an initial focus  on infrastructure  projects, statewide and could provide financing at 2 %.

At least 10 or 12 other cities and states are exploring this issue. North Dakota already has such a bank. Could Boston make good use of  an annual $20 to $30 million in savings on its bonds, say for education or housing or any of the other public needs mentioned by the candidates.

I vote yes.

Charles Grigsby  (immediate past President – Mass Growth Capital Corp)
Jamaica Plain

Greetings to CommonBound Co-operators from Massachusetts Public Bank Advocates

The New Economy Institute’s CommonBound 2018 conference will take place this weekend in St. Louis. Here’s an open letter that one of our coordinating group members will be circulating, featuring background on our situation here in Massachusetts as well as a look at an alternative funding mechanism for cooperatives and employee-owned businesses. 

Our congratulations and thanks for this important meeting. We hope to make the next one in two years and are glad you have other public bank advocates here to share the important changes public banking could bring to our struggle for a more just, democratic, and transparent society.

Public bank advocacy is a little like extolling the virtues of eating worms to an audience of vegetarians and meat lovers. The deficit hawks (meat-eaters) fulminate against public banks making loans raising the specter of “inflation.” They don’t recognize that the 60% of the world’s banks that are “public” haven’t had this problem. And they seem blind to the fact that private banks already create money every time they make a computer entry for a loan. Austerity is their shining goal, for they don’t want “less-deserving” folk to benefit from public bank loans.

Enter the vegetarians! Locked in an old Jimmy Stewart movie, they imagine Aunt Maude’s savings are the source of the mortgage taken out by a young, upstanding couple. They don’t seem to grasp that banks never lend out deposits and that things in the banking world are just not all rosy. It is difficult to realize that Woodrow Wilson gave away our government’s power to create money to a cabal of private bankers from the largest banks (the so-called Federal Reserve). We fail to see the connection between financial fraud and rigged elections.

Hopefully, we’ll wake up before there is no choice but to eat worms!

The Massachusetts Infrastructure Bank was conceived as an answer to the inefficient, captive market of the largest banks for local infrastructure, whether roads and bridges or schools and hospital information systems. The current market prioritizes the safety of investors and lenders. Large banks claim that if a town or city already spends more than 6% of its budget on debt service, then they can charge double and triple the interest rate on bonds. While triple A-rated Boston has to pay an ever-rising interest rate on bonds approaching 5%, Worcester might have to pay 13% and more to borrow to fix a pothole. Boston gets less than 1/2% interest on its deposits in Bank of America but pays 5% on a bond?

Bank bond salesmen are shrewd. They spout legal and financial terms at town managers. They show contracts with stipulations hidden in fine print. These include rate hikes for delays, and non-competition clauses that tie the hands of public officials who come up with alternative solutions. We did a survey of mayors and town officials and found that 41% reported difficulty raising finance for infrastructure, 54% had to defer critical projects, and 96% were highly interested in an alternative to the private bond market. (How about a public bank loan with a 2 to 3% rate, the profit from which the bank invests again in unmet public needs.)

Another advocacy group successfully requested that legislation be filed for a study commission on our Commonwealth having a public bank. The appointed members included large banks and the Massachusetts Bankers Association. In 2011 they, not surprisingly, vehemently opposed the idea of a public bank. (No one else should get to create money even for a public purpose! Only large private banks should get bailed out with free taxpayer funds and then invest these (our money!) in speculative derivatives to earn 20% for their own coffers.)

So we researched the profitability of local, community banks in North Dakota where they sometimes partner with a State public bank. We found that they were on average between two and three times more profitable than similar banks in Massachusetts. We went to the Banker’s Association and asked them not to oppose our bill as they, in general, don’t make large infrastructure loans. Further, we left the door open to partnering with interested community banks.

To fast forward for this brief summary, our bill, H3543, is before our State legislature. We wrote it to preclude the bank becoming a revolving loan fund or one used to extract public funds to support private profit. If it does not pass, we will re-file next year and develop social media support. See: HubPublicBanking.org.

Though our bill focuses only on infrastructure, once the bank achieves profitability in two to three years, the legislation is written so that the bank’s role can expand into funding student loans and other needs identified with public participation.

One such need under discussion is a funding mechanism for co-operatives, businesses transitioning towards worker ownership, and ESOPs.  Hopefully, it will eliminate the need for bridge loans. It is based on Switzerland’s WIR program and bank that started in 1932 and today includes fully one quarter of all small- and medium-sized businesses. Bernard Lietaer and Gwen Hallsmith also describe a “Commercial Credit Circuit” or “C3” program. It was almost adopted nationally in Uruguay until it met objections from large, private international banks.

Such a C3 program might be designed to provide invoice insurance for a network of co-operative businesses at a cost of 1% of any invoice (for example; .01x$30,000=$300). In turn, an insured invoice may be used as cash within the network and to pay public debts, fees, and taxes and many utility bills. This program is open to co-operatives because documented research points to their hiring and retaining community members rather than offshoring jobs, their support of local efforts and other cooperatives, and their environmental record. Hence, preventing cash flow problems for these businesses is of paramount value. (Note that a public bank may make little profit on this program, perhaps only supporting the few computer technicians and administrative staff that run it. However, it can make a great difference to the prosperity and well being of communities.)

Our public banking program needs your support and help in designing a successful invoice insurance program. We need your ideas to know about the timing of needed bridge loans and how cooperative networks at a regional or state level might achieve the necessary strength and mutual support. Then there is the hope that a State-run public bank might also transition into a cooperatively run-bank as well.

Please contact us with your feedback, ideas, good humor and brave spirit of innovation. Many thanks. For the Massachusetts Infrastructure Bank, Stephen Snyder, asterix40@gmail.com, 401-248-8052.