Bill would create California public bank

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The California Infrastructure and Economic Development Bank would be expanded into a state public bank under a bill introduced Thursday by two state lawmakers.

The legislation, named the Bank on California bill, would add billions of dollars to the infrastructure bank’s financing capacity so it could extend more support to struggling small businesses and local governments. Miguel Santiago of Los Angeles and David Chiu of San Francisco, both Democrats in the State Assembly, co-sponsored the bill.

The California Reinvestment Coalition, which supports the bill, called it “a game changer” that would “right the history of redlining in communities of color and the inherent structural racism in the current banking system.” Executive Director Paulina Gonzalez-Brito said that more recently, an “overwhelming majority” of small businesses in low-income neighborhoods were left out of the Paycheck Protection Program funding.

"If California is serious about addressing racial and income inequities, we must create a banking system that centers people, not profits,” she said in a press release.

The California Bankers Association said it opposes the bill, questioning the need for a public bank, the government’s ability to run one and the level of interest among state residents.

“It’s unfortunate that the narrative that banks somehow do not support their communities continues to be the main talking point for public bank advocates,” association spokeswoman Beth Mills said. “Banks of all sizes are some of the strongest supporters of community organizations, not to mention the critical role they have played during the pandemic. … Public banks put taxpayer dollars at risk.”

The infrastructure bank, which is part of the governor’s office of economic development, provides financing to public agencies by issuing tax-exempt and taxable revenue bonds. Under the bill, it would also accept deposits from, and handle accounts for, local agencies and governments. Those deposits would provide a stable long-term funding source for local governments and for loan guarantee programs for small businesses.

The bill’s supporters said that funding for the infrastructure bank’s expansion would come from investing about $9.9 billion, or 10%, of the state’s Pooled Money Investment Account into the infrastructure bank.

Its sponsors also say the public bank’s competitive threat to the private sector would be minimal because it couldn’t take deposits from consumers or businesses. It would do little direct lending, they say, and its guarantee programs would be part of partnerships with banks, credit unions and community development financial institutions.

The bill is just the latest of many attempts to establish a publicly owned bank in California. Last year, Gov. Gavin Newsom signed a bill that authorizes local governments to establish their own banks. That bill did not actually create a public bank, but it laid out the framework and process for doing so. In 2018, Los Angeles voters rejected a city charter amendment that would have authorized the city to establish a public bank.

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