California legalizes public banking [Oct 2019], setting the stage for more affordable housing
[After 100 years of just 1 public bank in the nation (ND), California makes it possible for many to flourish, serving the public interest, instead of depositing our tax wealth in Wall Street banks.]
Cities and counties in California will be allowed to create their own public banks, making the state one of just two to legalize institutions of that kind.
The California governor, Gavin Newsom, on Wednesday signed the Public Banking Act, or AB 857, which will allow city and county governments to create, or sponsor, public banks. Those banks will in turn provide public agencies access to loans at interest rates much lower than they could find at private banks.
Supporters say the change sets the stage for funding infrastructure demands or providing loans to developers to help meet affordable housing needs.
Assemblyman David Chiu, who co-authored the legislation with assemblyman Miguel Santiago, said the bill’s “signing sends a strong message that California is putting people before Wall Street profits”.
The Democratic congresswoman Alexandria Ocasio-Cortez tweeted her support on Wednesday after Newsom signed the bill, writing: “Public banking is next level!”
The Colorado Public Banking Coalition
There are many social and human rights organizations who are supporting the establishment of publicly owned, Public Banks, as a means of structurally addressing the underlying causes to our many crises: homelessness, indebtedness, illnesses derived from being over-worked and underpaid, poverty, and major planetary crises.
350Colorado.org endorses and advocates for public banks in every city, and county in Colorado.
And there are many more organizations joining a root-solution to a common problem: money, how it is presently used for ill, and how it can become the servant of humanity, instead of its master.
Public banks can be the revolutionary change needed to address these many social, environmental, economic, and financial needs.
For in a Capitalist world, whomever controls capital, and the powers of credit creation, controls the world.
Which is precisely why public banking is essential to the survival of the many, many life-forms upon which we depend, and for the Green New Deal we so desperately need.
A public bank turns the wealth of the community from which the taxes are levied, first toward the community, and beyond as community wealth accumulates. Our supporting organizations are listed here:
Colorado Public Banking Coalition
Public Banking Around the Nation
State legislature bill. 2017-2018 HB 376- Establishment of State-Owned Bank. Text of Measure. Referred to Finance.
“An Act establishing a state bank; relating to insurance, mortgage lending, securities, and permanent fund dividends; and providing for an effective date.”
With the passage of AB857, the Public Banking Act of 2019, cities and counties in CA can establish their own publicly owned, Public Banks. Check out the California Public Banking Alliance.
In the wake of passage of the Public Banking Act, San Francisco commissioned its Treasurer to conduct a Feasibility Study. “The goal of this report is to provide thoughtful analysis of the financial costs and benefits of creating a municipal bank and to outline the policy and operational considerations should the City choose to proceed.” Model 2 in the report is of special interest.
Public Banks Are Legal under Colorado’s Constitution
In October 2019 the Office of Legislative Legal Services of the state of Colorado issued its Legal Opinion in which it concluded that a state public bank is probably legal under Colorado’s constitution. This means that it will not be necessary to amend Colorado’s constitution in order to establish a state public bank. The Office of Legislative Legal Services issued a follow-up legal conclusion that public banks for cities and counties are probably legal under the constitution for the same reasons a state public bank is legal, and that “To the extent that a public bank’s business were restricted to purely local matters not in conflict with a home rule government’s charter, the home rule government could probably act pursuant to its existing authority to create a public bank even in the absence of authorizing legislation.”
These conclusions are in accord with but expanded upon the conclusion of the Legal Memorandum by RMPBI that state representative Jonathan Singer, who has been our valuable ally in the effort to establish public banks in Colorado, forwarded to the Office of Legislative Legal Services with a request for their legal opinion on the legality question. The favorable answer to these questions of legality is most valuable to our efforts. Based upon these legal opinions drafts of state legislation have been prepared and may possibly be introduced in the current legislation session, although it appears more likely that we will focus upon an early start for the 2021 legislative session. However, we have proposed interim legislation to authorize communities and the state to place some of their deposits in credit unions that may be introduced in this session.
E.O. 91 Executive Order establishing a Public Bank Implementation Board tasked with developing an implementation plan for a public bank within one year.
SB 5949 Bill to establish the Washington investment trust – Referred to Committee on Financial Institutions, Economic Development & Trade – Feb 2019
PSSB 5949 Proposed amendment that would allow municipalities and other political subdivisions to cooperatively own the trust – Heard in committee – Feb 2019
SB 6032 Supplemental appropriations bill that includes funds to develop a business plan for a public cooperative bank – Passed legislature – Mar 2018
SB 6375 An Act developing a publicly owned depository business plan – Referred to Ways & Means Committee – Jan 2018
Proviso in the State’s 2017-2019 Operating Budget to create an Infrastructure and Public Depository Task Force – June 2017
HB3162 Authorizing the creation of a state bank – Feb 2010
2019:
Banks now create most of our money supply and need to be made public utilities, following the stellar precedent of the Bank of North Dakota, which makes below-market loans for local communities and businesses while turning a profit for the state. The Bank of North Dakota was founded in 1919 in response to a farmers’ revolt against out-of-state banks that were foreclosing unfairly on their farms. Since then it has evolved into a $7.4 billion bank that is reported to be even more profitable than JPMorgan Chase and Goldman Sachs, although its mandate is not actually to make a profit but simply to serve the interests of local North Dakota communities. Along with hundreds of public banks worldwide, it has demonstrated what can be done by cutting out private shareholders and middlemen and mobilizing public revenues to serve the public interest.
The time is right politically to adopt that model. The newly elected California governor, Gavin Newsom, has expressed strong interest both in a state-owned bank and in the IBank approach. In Los Angeles, the City Council brought a measure for a city-owned bank that won 44% of the vote in November, and City Council President Herb Wesson has stated that the measure will be brought again. Where there is the political will, policymakers generally find a way.
Advocates in eight Golden State cities have formed the California Public Banking Alliance, which co-sponsored another public banking bill filed just last month. Introduced by Assembly Members David Chiu and Miguel Santiago, Assembly Bill 857 would enable the chartering of public banks by local California governments. The bill, which has broad grassroots support, would “authorize the lending of public credit to public banks and authorize public ownership of stock in public banks for the purpose of achieving cost savings, strengthening local economies, supporting community economic development, and addressing infrastructure and housing needs for localities.”
The first hearing on Hueso’s Senate Bill 528 was held in Sacramento last week before the Senate Committee on Governance and Finance, where it passed. The bill goes next to the Senate Banking Committee. With momentum growing, California could be the first state in the 21st century to form its own bank; but it is getting heavy competition in that race from Washington State.
Washington’s Public Bank Movement: The Virtues of Persistence
Like Sen. Hueso, Washington State Sen. Bob Hasegawa filed his first bill for a state-owned bank nearly a decade ago. The measure is now in its fifth iteration. Along the way, his Senate State Banking Caucus has acquired 23 members, just three votes short of a senate majority.
As Sen. Patty Kuderer explained at an informational forum held by the Caucus in October, their bills kept getting stalled with the same questions and concerns, and they saw that a different approach was needed; so in 2017, they advised the state to hire professional banking consultants to address the concerns and to draft a business plan that would “move the concept forward from the theoretical to the concrete, so that legislators would have a solid idea of what they would eventually be voting on.” They could bypass the studies and go straight to a business plan that laid out the nuts and bolts.
The maneuver worked. Senate Bill 6375 was the first public banking bill to be advanced out of the Policy Committee with bipartisan support. It got stalled in the Ways and Means Committee, but another bill, SB 5959, was filed this year. In yet another bill, SB 6032-Supplemental Budget, the fiscal Ways and Means committee committed $480,000 to assessing risk and developing a business plan for the effort.
The form of the proposed bank was also modified: a bank that simply would have received the state’s tax funds as deposits evolved into a “co-op” that would be open to membership not just by the state but by all “political subdivisions that have a tax base.” Opening the co-op bank’s membership would allow it to generate substantially more credit than could be made from the state’s revenues alone, since it would have the ability to hold as deposits the combined revenues of cities, counties, ports and utility districts, as well as of the state itself. Those entities would also be able to borrow at below-market rates from the co-op bank and to leverage the tax dollars they collected. The concept was similar to that being advanced in California’s SB 528, which would allow the IBank to expand its lending capacity to local governments by taking the demand deposits of those same governments and affiliated public entities.
The Washington State business plan is due no later than June 30, 2019, and legislators expect to vote on the bill no later than 2020.
Whenever it happens, says Sen. Hasegawa, “I see a public bank as almost inevitable because of the current financial structures we’re required to live under.” State infrastructure needs are huge, and the existing funding options—raising taxes, cutting services and increasing debt levels—have been exhausted. Newly-created credit directed into local communities by publicly-owned banks can provide the additional funding that local governments critically need.
Whichever state wins the race for the next state bank, the implications are huge. A century after the very successful Bank of North Dakota proved the model, the time has finally come to apply it across the country.
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This Radical Plan to Fund the ‘Green New Deal’ Just Might Work
Posted on December 17, 2018 by Ellen Brown
With what Naomi Klein calls “galloping momentum,” the “Green New Deal” promoted by newly-elected Rep. Alexandria Ocasio-Cortez (D-NY) appears to be forging a political pathway for solving all of the ills of society and the planet in one fell swoop. It would give a House Select Committee “a mandate that connects the dots between energy, transportation, housing, as well as healthcare, living wages, a jobs guarantee” and more. But to critics even on the left it is just political theater, since “everyone knows” a program of that scope cannot be funded without a massive redistribution of wealth and slashing of other programs (notably the military), which is not politically feasible.
Perhaps, but Ocasio-Cortez and the 22 representatives joining her in calling for a Select Committee are also proposing a novel way to fund the program, one which could actually work. The resolution says funding will primarily come from the federal government, “using a combination of the Federal Reserve, a new public bank or system of regional and specialized public banks, public venture funds and such other vehicles or structures that the select committee deems appropriate, in order to ensure that interest and other investment returns generated from public investments made in connection with the Plan will be returned to the treasury, reduce taxpayer burden and allow for more investment.”
A network of public banks could fund the Green New Deal in the same way President Franklin Roosevelt funded the original New Deal. At a time when the banks were bankrupt, he used the publicly-owned Reconstruction Finance Corporation as a public infrastructure bank. The Federal Reserve could also fund any program Congress wanted, if mandated to do it. Congress wrote the Federal Reserve Act and can amend it. Or the Treasury itself could do it, without the need even to change any laws. The Constitution authorizes Congress to “coin money” and “regulate the value thereof,” and that power has been delegated to the Treasury. It could mint a few trillion dollar platinum coins, put them in its bank account, and start writing checks against them. What stops legislators from exercising those constitutional powers is simply that “everyone knows” Zimbabwe-style hyperinflation will result. But will it? Compelling historical precedent shows that this need not be the case.
Michael Hudson, professor of economics at the University of Missouri, Kansas City, has studied the hyperinflation question extensively. He writes that those disasters were not due to government money-printing to stimulate the economy. Rather, “Every hyperinflation in history has been caused by foreign debt service collapsing the exchange rate. The problem almost always has resulted from wartime foreign currency strains, not domestic spending.”
As long as workers and materials are available and the money is added in a way that reaches consumers, adding money will create the demand necessary to prompt producers to create more supply. Supply and demand will rise together and prices will remain stable. The reverse is also true. If demand (money) is not increased, supply and GDP will not go up. New demand needs to precede new supply.
The Public Bank Option: The Precedent of Roosevelt’s New Deal
Infrastructure projects of the sort proposed in the Green New Deal are “self-funding,” generating resources and fees that can repay the loans. For these loans, advancing funds through a network of publicly-owned banks will not require taxpayer money and can actually generate a profit for the government. That was how the original New Deal rebuilt the country in the 1930s at a time when the economy was desperately short of money.
The publicly-owned Reconstruction Finance Corporation (RFC) was a remarkable publicly-owned cedit machine that allowed the government to finance the New Deal and World War II without turning to Congress or the taxpayers for appropriations. First instituted in 1932 by President Herbert Hoover, the RFC was not called an infrastructure bank and was not even a bank, but it served the same basic functions. It was continually enlarged and modified by President Roosevelt to meet the crisis of the times, until it became America’s largest corporation and the world’s largest financial organization. Its semi-independent status let it work quickly, allowing New Deal agencies to be financed as the need arose.
The RFC Act of 1932 provided the RFC with capital stock of $500 million and the authority to extend credit up to $1.5 billion (subsequently increased several times). The initial capital came from a stock sale to the US Treasury. With those resources, from 1932 to 1957 the RFC loaned or invested more than $40 billion. A small part of this came from its initial capitalization. The rest was borrowed, chiefly from the government itself. Bonds were sold to the Treasury, some of which were then sold to the public; but most were held by the Treasury. The RFC ended up borrowing a total of $51.3 billion from the Treasury and $3.1 billion from the public.
Thus the Treasury was the lender, not the borrower, in this arrangement. As the self-funding loans were repaid, so were the bonds that were sold to the Treasury, leaving the RFC with a net profit. The RFC was the lender for thousands of infrastructure and small business projects that revitalized the economy, and these loans produced a total net income of $690,017,232 on the RFC’s “normal” lending functions (omitting such things as extraordinary grants for wartime). The RFC financed roads, bridges, dams, post offices, universities, electrical power, mortgages, farms, and much more; and it funded all this while generating income for the government.
The Central Bank Option: How Japan Is Funding Abenomics with Quantitative Easing
The Federal Reserve is another funding option for the Green New Deal. The Fed showed what it can do with “quantitative easing” when it created the funds to buy $2.46 trillion in federal debt and $1.77 trillion in mortgage-backed securities, all without inflating consumer prices. The Fed could use the same tool to buy bonds ear-marked for a Green New Deal; and since it returns its profits to the Treasury after deducting its costs, the bonds would be nearly interest-free. If they were rolled over from year to year, the government would in effect be issuing new money.
This is not just theory. Japan is actually doing it, without creating even the modest 2 percent inflation the government is aiming for. “Abenomics,” the economic agenda of Japan’s Prime Minister Shinzo Abe, combines central bank quantitative easing with fiscal stimulus (large-scale increases in government spending). Since Abe came into power in 2012, Japan has seen steady economic growth, and its unemployment rate has fallen by nearly half; yet inflation remains very low, at 0.7 percent. Social Security-related expenses accounted for 55 percent of general expenditure in the 2018 federal budget, and a universal healthcare insurance system is maintained for all citizens. Nominal GDP is up 11 percent since the end of the first quarter of 2013, a much better record than during the prior two decades of Japanese stagnation; and the Nikkei stock market is at levels not seen since the early 1990s, driven by improved company earnings. Growth remains below targeted levels, but according to the Financial Times in May 2018, this is because fiscal stimulus has actually been too small. While spending with the left hand, the government has been taking the money back with the right, increasing the sales tax from 5 percent to 8 percent.
Abenomics has been declared a success even by the once-critical International Monetary Fund. After Prime Minister Shinzo Abe crushed his opponents in October 2017, Noah Smith wrote in Bloomberg, “Japan’s long-ruling Liberal Democratic Party has figured out a novel and interesting way to stay in power – govern pragmatically, focus on the economy and give people what they want.” He said everyone who wanted a job had one; small and midsized businesses were doing well; and the BOJ’s unprecedented program of monetary easing had provided easy credit for corporate restructuring without generating inflation. Abe had also vowed to make both preschool and college free.
Not that all is idyllic in Japan. Forty percent of Japanese workers lack secure full-time employment and adequate pensions. But the point underscored here is that large-scale digital money-printing by the central bank to buy back the government’s debt combined with fiscal stimulus by the government (spending on “what the people want”) has not inflated Japanese prices, the alleged concern preventing other countries from doing it.
Abe’s novel economic program has achieved more than just stimulating growth. By selling its debt to its own central bank, which returns the interest to the government, the Japanese government has in effect been canceling its debt; and until recently, it was doing this at the rate of a whopping $720 billion (¥80tn) per year. According to fund manager Eric Lonergan in a February 2017 article:
The Bank of Japan is in the process of owning most of the outstanding government debt of Japan (it currently owns around 40%). BOJ holdings are part of the consolidated government balance sheet. So its holdings are in fact the accounting equivalent of a debt cancellation. If I buy back my own mortgage, I don’t have a mortgage.
If the Federal Reserve followed suit and bought 40 percent of the US national debt, it would be holding $8 trillion in federal securities, three times its current holdings from its quantitative easing programs. Yet liquidating a full 40 percent of Japan’s government debt has not triggered price inflation.
Filling the Gap Between Wages, Debt and GDP
Rather than stepping up its bond-buying, the Federal Reserve is now bent on “quantitative tightening,” raising interest rates and reducing the money supply by selling its bonds into the market in anticipation of “full employment” driving up prices. “Full employment” is considered to be 4.7 percent unemployment, taking into account the “natural rate of unemployment” of people between jobs or voluntarily out of work. But the economy has now hit that level and prices are not in the danger zone, despite nearly 10 years of “accommodative” monetary policy. In fact, the economy is not near either true full employment or full productive capacity, with Gross Domestic Product remaining well below both the long-run trend and the level predicted by forecasters a decade ago. In 2016, real per capita GDP was 10 percent below the 2006 forecast of the Congressional Budget Office, and it shows no signs of returning to the predicted level.
In 2017, US gross domestic product was $19.4 trillion. Assuming that sum is 10 percent below full productive capacity, the money circulating in the economy needs to be increased by another $2 trillion to create the demand to bring it up to full capacity. That means $2 trillion could be injected into the economy every year without creating price inflation. New supply would just be generated to meet the new demand, bringing GDP to full capacity while keeping prices stable.
This annual injection of new money not only can be done without creating price inflation; it actually needs to be done to reverse the massive debt bubble now threatening to propel the economy into another Great Recession. Moreover, the money can be added in such a way that the net effect will not be to increase the money supply. Virtually our entire money supply is created by banks as loans, and any money used to pay down those loans will be extinguished along with the debt. Other money will be extinguished when it returns to the government in the form of taxes. The mechanics of that process, and what could be done with another $2 trillion injected directly into the economy yearly, will be explored in Part 2 of this article.
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This article was first posted on Truthdig.com. Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books including Web of Debt and The Public Bank Solution. A 13th book titled Banking on the People: Democratizing Finance in the Digital Age is due out early next year. She also co-hosts a radio program on PRN.FM called “It’s Our Money.” Her 300+ blog articles are posted at EllenBrown.com.
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California just legalized public banking, setting the stage for more affordable housing
Supporters say the change allows for funding infrastructure demands or providing loans to public agencies at low rates
Mario Koran, Fri 4 Oct 2019
Cities and counties in California will be allowed to create their own public banks, making the state one of just two to legalize institutions of that kind.
The California governor, Gavin Newsom, on Wednesday signed the Public Banking Act, or AB 857, which will allow city and county governments to create, or sponsor, public banks. Those banks will in turn provide public agencies access to loans at interest rates much lower than they could find at private banks.
Supporters say the change sets the stage for funding infrastructure demands or providing loans to developers to help meet affordable housing needs.
Assemblyman David Chiu, who co-authored the legislation with assemblyman Miguel Santiago, said the bill’s “signing sends a strong message that California is putting people before Wall Street profits”.
The Democratic congresswoman Alexandria Ocasio-Cortez tweeted her support on Wednesday after Newsom signed the bill, writing: “Public banking is next level!”
Public banks have existed for 100 years, originating in North Dakota where low population density made it both difficult for financial institutions to grow and loans tough to come by. In 1919, the Bank of North Dakota was born, which today is the nation’s only public bank.
Supporters say public banks benefit local communities because they aren’t driven to seek ever-higher profits, allowing government agencies access to low-interest loans for projects that benefit the public. As they do in North Dakota, public banks in California would also partner with private banks to offer loans to businesses and students.
In California, calls for public banks intensified after the financial collapse of 2008. The crisis increased demands for divestment in banks such as Wells Fargo and major financial institutions tied to the Dakota Access pipeline and other controversial projects, said Sushil Jacob, a senior attorney with the Lawyers’ Committee for Civil Rights of the San Francisco Bay area.
Jacob’s organization is a founding member of the California Public Banking Alliance, a grassroots network of groups in cities that campaigned for the bill including San Francisco, Oakland and San Diego. Jacob points to North Dakota as evidence of the effectiveness of public banks.
“The state of North Dakota has six times as many financial institutions per capita as the rest of the country and it’s because they have the Bank of North Dakota. When the great recession hit, the Bank of North Dakota stepped in and provided loans and allowed local banks to thrive,” Jacobs said.
Critics of public banks said that it sets the stage for public corruption and self-dealing.
“We are disappointed that the governor signed AB 857 into law today. Despite the rhetoric from public bank advocates, Californians are not clamoring for a public bank option,” the California Bankers Association said in statement. “[We]hope that community leaders and elected officials will take note of the risks associated with establishing a municipal bank, before opting to explore this unnecessary and unwanted public option,” it added.
“We don’t think the government should be in the business of banking,” Stuart Waldman, president of the Valley Industry & Commerce Association, a business advocacy group in the San Fernando Valley that opposed the bill, told the Los Angeles Times. He pointed to the department of motor vehicles as an example of the government’s inefficiency.
Jacob said the public banks in California would be operated by professional bankers and run by an independent board of directors to insulate and protect against self-dealing.
The bank’s sponsor would have to propose a viable business plan which would need to be approved by the state department of business oversight and would also need approval to obtain direct deposit insurance from the Federal Deposit Insurance Corporation. The plan would have to go before the public before it moved forward.
“That injects an element of sunshine and public debate,” said Jacobs, who added that because the banks would be public entities, they would be subject to laws that require them to provide the public access to records and meetings. “There are a lot of protections, far more than the current structure (of private banks).”
The law allows the state to license no more than two public banks per calendar year and caps the total number at 10.
Nearly two dozen other states – including four this year – have also tried to establish public banks, according to Vox. None of the other bills have passed.Topics
