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AB 857: The crucial first step toward giving control of City’s money back to the people

AB 857: The crucial first step toward giving control of City’s money back to the people

It has been over a decade since the financial markets crashed in 2008, spurring foreclosure of homes, job loss for millions and economic destitution for many. The effects of this crisis are still being felt by working Americans, but for Wall Street these effects are spelled with a dollar sign.

According to KQED, since PG&E—California’s massive utility company—filed Chapter 11 protection in January 2019, lawyers and consultants have made $217 million. Corporate banks have drawn $114 million in financing fees, a number that could exceed $1 billion by the time PG&E exits bankruptcy next year.

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This comes as a narrative absolving Wall Street from blame for that financial crisis is being pushed by a new working paper, published by the Federal Reserve Bank of Philadelphia in December 2019.

This highlights something working Americans have known for a long time: Wall Street is the enemy of average Americans and will make money off of their despair and destitution.

Public banking is the solution. Broadly a public bank, in the context of a large municipality like San Francisco, means that the roughly $11 billion in taxes drawn from residents is under the financial control of the City and accountable to elected officials. This is opposed to how it currently operates which is under the purview of Bank of America.


AB 857, which passed in early October of this year, is the first step to public control of these funds. This bill allows “the lending of public credit to public banks and authorize public ownership of public banks.”

AB 857 is just one step in a full sprint towards people’s control of the City’s money. It was co-sponsored by District 17 Assemblymember David Chiu and championed by local activists as a sign of progress in an otherwise brutal economic environment.

“AB 857 is really about making sure that the public’s money is used to benefit the public,” Chiu told El Tecolote. “Currently, a portion of our tax dollars go to some of the largest Wall Street banks in the form of fees and high interest rates. I think public banking could provide a more efficient and beneficial avenue to keeping the public’s money safe and investing in worthwhile community endeavors.”

Public banking providing a more effective form of money management for the public is a sentiment gaining ground with working people and politicians across the state and even the country.

Illustration: Chiara Di Martino

“From public banking advocacy organizations, civil rights attorneys, environmental advocates, Democratic party activists, and others, many people had a hand in getting this historic bill over the finish line,” Chiu stated.

This unified front of working people, organizers and politicians is what has brought public banking to the forefront of the political discussion both in California and nationwide.

“It doesn’t make sense to line the pockets of Wall Street investors with public tax dollars when we could be investing that money back into our local communities,” Chiu stated. “Also, many large financial institutions invest in industries—fossil fuels, gun manufacturing, private prisons, immigration detention centers—that most Californians are opposed to.”

That wave of public banking support is clearly bolstered by a ground swell of people, across party lines, who see California’s investments in large conglomerate banks as not only immoral but unsustainable.

District 1 Supervisor Sandra Fewer has also pushed the public banking movement forward in recent months with legislation introduced in November last year establishing a second municipal task force focusing on what the process would look like and possibly drafting a business plan.

“This legislation [AB857] changes the game and allows a pathway for local or regional public banks to be formed and chartered by the state, an option that previously did not exist,” Fewer told El Tecolote. “We have taken many steps towards a public bank during my three years on the Board of Supervisors, but the next step necessary to move this project forward is the development of a business plan.”

Both Chiu and Fewer also focused on how a public bank would help refocus the financials power of San Francisco from underwriting corporate profits to affordable housing and small business investment.

These have been key focal points from Public Bank Coalition organizers throughout the entire process and was something some local organizers felt the first task force fell short on.

On a local level the public bank movement has largely been driven by younger, distinctly progressive organizers who have worked tirelessly to bring this conversation to the forefront of the state politics discussion.

Kurtis Wu, co-founder of the San Francisco Public Bank Coalition, is one such organizer.

“AB857 was a huge win for our coalition. We not only proved that we could pass tangible legislation but we proved to ourselves that we can take on one of the most powerful industries, Wall Street, and win. We know the fight isn’t over and we need to take this momentum and energy to the local level,” Wu said.

Part 2 of this commentary will run in our following Feb. 13 issue.

But the previous iteration of a public banking task force, which released a finalized report in March 2019, fell short of what organizers expected. 

The task force included three models for establishing a public bank; none of the three provided an honest assessment of a public bank as an INVESTMENT rather than a COST and none of the three models provided analysis of how to phase in a public bank thus diminishing the initial costs. 

“It is important that the task force frame this as an investment, not simply a cost,” Kurtis Wu, co-founder of the San Francisco Public Bank Coalition, said. “I think the task force needs to have a more holistic approach to the idea of creating a public bank, factoring in return on investments, externalities with the current system, and lost opportunity costs that we are losing out by not currently having a public bank,” 

This, in conjunction with a business plan, would help to alleviate public or institutional anxieties about a large overhaul of municipal funds like a switch to a public bank. A city as large and flush with capital as San Francisco would not be able to switch from private to public banking overnight, it would require a ramp up of the public bank and a phase out of the Wall Street investment and the first task force’s report offered no such framing, only showing the huge upfront costs of an immediate shift from private to public municipal banking. 

“The previous task force report overstated start-up costs and the timeline to break even,” Wu said. “I think overall the previous task force could have done a better job at laying out a clearer blueprint to establish a public bank.”  

Wu specified that the coalition would hope to see this task force made up of “financial experts, including representatives from community banks and credit unions, and community members that have lived experience when it comes to affordable housing, renewable energy, student loans, small businesses, etc.” 

Wu highlighted how a public bank and the process of taking municipal banking back into the hands of residents is only successful if the structure that creates said bank is, “truly represented by the people.”

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The criticism levied at the previous public banking task force centered around the miscategorization of an investment versus a cost regarding the initial stages of a public bank. Some of the high initial costs were not weighed against the cost of continuing the current banking path. 

The three models in the March 2019 report “were not satisfactory to our coalition,” according to Wu. They hoped to phase in total public ownership of municipal banking, initially starting as a non-direct lending bank, then after building up enough capital, take on the sum of the San Francisco’s roughly $11 billion annual in general funds. 

“Model 1 is not even a bank and models 2 and 3 assume that the bank would be start immediately overnight, which explains the outrageous start-up costs and timeline to break even,” Wu said. 

Sushil Jacob, a Senior Attorney with Lawyers’ Committee for Civil Rights, explained why AB 857 was such a crucial first step. 

“AB 857 provided a legal pathway for the City to apply for a bank license. AB 857 provides a new type of bank license for publicly-owned banks and provides certain privileges only available to those banks,” Jacob said. “This task force is created with the specific mandate to create a business plan for the bank that will eventually be submitted to the state and federal regulators to obtain a bank license. The business plan will provide the roadmap for the bank including: directors and officers; business lines, governance plans—allowing community input, while insulating bank management from political interference. This is the role of the independent board of directors,” he said. 

Both Jacob and Wu brought up a Model 1.5, which is “a more phased approach.” This, as opposed to the approach proposed by the models in the first report, would alleviate large upfront costs and make the bank more sustainable long term. 

“It starts with a non-depository municipal finance corporation. After the municipal finance corporation builds a track record and lending expertise it then applies for a depository license as a public bank,” Jacob said. 

The proposition by coalition members and advocates is designed to minimize up front costs while gathering the capital to sustain the bank long term. 

“Model 1.5, which we are proposing, would start with investments and then break up the city’s banking functions with Wall Street over a period of time. This would reduce risk and start-up costs,” Wu said. 

Public banking represents a first revolutionary step for the populus in taking control of tax dollars and the subsequent distribution. In order to take meaningful steps towards economic justice, which is a grand encompassing project including healthcare and housing as a human right, we must take back our financial control. 

These are long term idyllic goals, but that doesn’t mean they should be written off as unattainable or politically divisive. Talking to people about what senator supported what bill can be effective, but for the masses of disaffected Americans, it’s just annoying and pandering. To connect and mobilize people effectively and consistently, we have to approach them along economic lines; class first politics are our way out of this hellscape of a world we seem stuck in. Taking banking in the hands of the public is a crucial first step. 

In the decade plus since the economic crash, politicians have signed back on to the financial ravagement and exploitation that led us there in the first place. They’ve again relinquished any regulatory power to capital under the guise of “the logic of the market.” The logic of the market seems to work well for those on Wall Street and continually fails the rest of us. If we are going to learn anything from our past mistakes, hopefully this lesson sticks. As trite and dramatic as it sounds, there is little time to waste. We have an option to get this long march towards equity and sustainability started and it comes in the form of a public municipal bank. 

“The last task force report was more focused on “if.” With climate change, affordable housing, and our inability for cities to truly leverage our tax dollars for public good, the conversation about ‘if’ in our mind is over,” Wu said. 

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