Is the public banking movement losing steam?
On its face, the public banking movement seems to have suffered a few setbacks in recent months.
First, Los Angeles voters turned down a proposal that would have paved the way for the city to create its own public bank. Then, a group studying the issue for the city of Seattle concluded that, while feasible, a public bank might not produce the cost savings proponents had hoped for.
Meanwhile, efforts in New Jersey appear to have stalled, despite the new governor’s campaign pledge to create a state-owned bank that would fund small infrastructure and economic development projects and return its profits to state coffers.
So is the movement losing steam? That depends on whom you ask.
Bankers and their trade groups say that the results in Los Angeles and the lack of activity in New Jersey would seem to indicate that there is little appetite among local lawmakers and citizens to create taxpayer-owned banks.
But public banking advocates say they aren’t discouraged by either the Los Angeles vote or Seattle’s feasibility study, and they’re confident that Murphy will ultimately follow through on his pledge.
They note, too, that efforts to create public banks are advancing elsewhere. For example, Washington state legislators committed $480,000 to developing a business plan for a public bank, and the California cities of Oakland and Berkeley are moving forward with their own feasibility study for a regionally owned public bank.
“We do take the long view. This is an evolutionary process,” said Walt McRee, a senior adviser and chair emeritus of the Public Banking Institute. “These are not setbacks at all in our minds.”
Andrea Batista Schlesinger, a partner at HR&A Advisors, and her team recently completed Seattle’s feasibility study.
There, the public bank was proposed largely as an alternative to banking with Wells Fargo. Last year, the city council voted to end its relationship with the San Francisco bank over its investment in the Dakota Access Pipeline, but ultimately renewed that contract when it found no other takers.
If the city wants to divest from Wells Fargo and better fund affordable housing, there are easier ways to do that than setting up a whole new entity, HR&A concluded. For example, the city could modify its treasury services request for proposals to make it easier for smaller banks to apply, or it could explore nonbank investment vehicles to fund affordable housing programs.
“Cities are very interested in public banking, they’re interested in eliminating or reducing dependence on banks like Wells Fargo, and they’re interested in trying to figure out how to support additional public priorities,” said Schlesinger. “I think the issue is that there are multiple pathways to do public banking that can meet the cities’ goals in faster and more direct ways.”
A year ago, the public banking movement was gathering strong momentum. New Jersey Democrat and public banking advocate Phil Murphy had just won the state’s gubernatorial race. A number of other cities and states also floated the idea for reasons ranging from greater investment in public infrastructure to providing banking options for legal marijuana businesses.
Currently, there are just two public banks in the United States. The Bank of North Dakota was formed nearly 100 years ago to provide capital to farmers during a recession, while the Territorial Bank of American Samoa received its routing number just this year.
The ballot question in Los Angeles was the first time the idea of a municipal bank had actually been put to a public vote, though, and those who opposed the idea largely saw the result as a vindication of their views. Charter Amendment B garnered just 42% of the vote.
“It seemed like people are really looking at the issue a little more seriously. Had it been a narrower loss or a victory, I think we would have been concerned,” said Glen Simecek, president and CEO of the Washington Bankers Association. “It felt to me that the citizenry had an appreciation for the complexity of banking.”
Public banking proponents contend that their side actually did quite well with minimal funding and just four months to get the word out about the ballot question.
“I think most of us are pretty proud of how the Los Angeles question came out,” McRee said. “They got a quarter of a million people onto the bandwagon. That was pretty impressive.”
Backers of the measure have further argued that its failure was more a reflection of the public’s lack of faith in its city council than it was an indictment of the concept of public banking. They also say the Los Angeles Times’ editorial stance against it, calling it “ill conceived” and “half baked,” didn’t help.
Meanwhile, on the East Coast, New Jersey lawmakers introduced bills early this year to establish a state bank, only for those bills to then languish in committee. Bankers and public banking advocates alike say the matter has taken a backseat to more pressing issues.
With New Jersey potentially about to legalize recreational marijuana, the state bankers’ association said that its priority will be lobbying for a federal carve-out for banks to do business with legal marijuana firms.
That’s largely motivated by a desire to pre-empt discussion about a public bank to serve that purpose.
“We will be actively soliciting and advocating with our members of Congress to create a legislative solution on this,” said Michael Affuso, the director of government relations for the New Jersey Bankers Association. “It might be a bill that’s already in Congress or it might be something that we collaborate on in the future, but we will be acting as quickly as we can. At this point, it might be independent of the national trades. That’s how important this is in New Jersey.”