State Bill Would Establish California Public Bank For Coronavirus Relief

Source: Sacramento Business Journal, Laura Waxmann
Photo: State Assemblyman David Chiu, D-San Francisco, co-authored a bill meant to establish a California public bank to aid the Covid-19 economic recovery.

Under the terms of new state legislation announced Thursday, a California public bank would be established to help with a more equitable economic recovery from the Covid-19 crisis.

Assembly Bill 310, authored by Assembly Members Miguel Santiago, D-Los Angeles, and David Chiu, D-San Francisco, would relocate “idle” funds from the state’s “checking account” into the California Infrastructure and Economic Development Bank, or IBank, by moving 10% of the state’s Pooled Money Investment Account (PMIA) into the IBank’s loan fund.

The PMIA is essentially an investment vehicle for taxpayer money used by the state treasurer to manage the state’s cash flow.

Using these funds and expanded authority under the legislation, the IBank would be able to directly lend funds and offer credit to community banks, credit unions, municipalities and small businesses struggling because of the economic downturn caused by Covid-19. The IBank was originally created in 1994 to finance public infrastructure and private development, but would be converted to a depository public bank under AB 310 that would be eligible to receive deposits from state and local sources and leverage its capital to provide favorable loans.

The bill also lifts existing IBank spending caps so funds could be spent on addressing budget gaps of local governments, schools, for affordable housing, small businesses and on low-income communities of color, according to its authors.

During a virtual news conference on Thursday, Santiago characterized the proposal as “modest,” owing to its use of only 10% of the PMIA funds.

“We already have an IBank, and it already has the purpose to help the California economy — let’s restructure it into a state bank and take 10% of the money California already holds in its checking account and let’s help Main Street,” Santiago said.

“We can structure a bank that actually is accountable to the people and does what the people want it to do — we can help small businesses, we can reimagine what banking looks like and actually invest in affordable housing, we can look at local infrastructure like parks.”

The proposed legislation is part of a larger statewide effort toward the promotion of public banks.

A public bank is owned by the state, cities, counties, or joint powers authorities, with its deposit base consisting largely of tax revenues and fees. Those revenues are leveraged to issue loans, but unlike private banks, the interest paid to and the profits earned by a public bank are returned to the local community. Some critiques of public banks include the high level of startup capital necessary to establish a working model and the potential risk to taxpayer funds.

Last year, California passed AB 857 (also co-authored by Santiago and Chiu), which allowed jurisdictions to apply for public bank charters.

“Last year, our state became the first state in 100 years to allow for the authorization of public banks — it was a monumental step for our state,” Chiu said.

Chiu called AB 310 the “next logical step for this movement.”

“We know that our recovery efforts with this pandemic drive recession have unfortunately been led or not led particularly well by our federal government with commercial banks as intermediaries,” Chiu said. “Without a state public bank our state of California is dependent on outside for-profit actors, dependent on Washington D.C., thus we cannot ensure for ourselves a long term accountable, sustained recovery.”

Chiu added that the state public bank would be structured to develop standards “to prevent the ongoing discrimination and defective redlining we have had when it comes to financial services and markets throughout the state.”

In order to become law on January 1, 2021, AB 310 must be signed by Gov. Gavin Newsom by September.

https://www.bizjournals.com/sacramento/news/2020/07/13/ab-310-covid-19-california-public-bank