Several years ago Pennsylvania Rep. Dwight Evans championed an initiative to bring grocery stores to low-income neighborhoods across the state, and now he hopes to do the same with banks.
"This is all about trying to rebuild communities," said the Philadelphia Democrat, who is sponsoring a bill in the Pennsylvania General Assembly to entice banks to put branches in underserved areas where making a profit could be difficult.
The bill was introduced Tuesday, after being reworked to reflect comments at a hearing in October. The incentives it would offer banks include a state tax credit and priority consideration for government deposits.
Rep. Evans said he came up with his proposal after learning about a similar program in New York.
The concept is getting the attention of other states, too. Louisiana launched its version of the program this year after lawmakers made it possible by passing the Banking Development District Act in August. And bankers in Illinois, California, and Texas have backed efforts to create such programs in their states.
New York started to reward banks nine years ago for putting a branch in "banking development districts," specially designated areas with little or no banking services. The branches can receive up to $20 million of state and local deposits at below-market rates for two years, property tax breaks for 10 years, and other perks such as assistance with employee training.
So far 35 branches have been opened through the program, mostly in New York City and Buffalo, said Glorimar Perez-Gonzalez, the press secretary for the New York State Banking Department.
Bankers who have participated in the program say it helps make a start-up branch in a distressed neighborhood more viable.
That is why Guy T. Williams, the president and chief executive officer of the $786 million-asset Gulf Coast Bank and Trust Co. in New Orleans, said he is pleased that Louisiana started its program.
"There are some areas that are very poor, and therefore there is really not much potential for banks to make money," Mr. Williams said. "You would need a little something to make a branch in those areas economically feasible, and that's what the Louisiana law intends to do."
John Fields, the deputy chief examiner for the Louisiana Office of Financial Institutions, said the program went into effect in January. Three banks have inquired about having an area designated as a banking development district, but none have filed an application yet.
The law creating the Louisiana program, which almost mirrors the New York one, enables local government officials to waive property taxes for a participating branch, and allows banks to be designated as "public body depositories," so that they can hold government deposits at or slightly below market rates.
The Louisiana law does not specify how long the tax break can last or how long the banks can hold the government deposits, but Mr. Fields said details like that might be added, since regulators are still finalizing some aspects of how the program would work.
Robert Taylor, the CEO of the Louisiana Bankers Association, said the trade group offered input on the law to help ensure a workable program. Some bankers view it as an opportunity to replace branches in places like St. Bernard Parish, where many residents are low-income and are still rebuilding after the hurricanes that hit several years ago, he said.
Mr. Williams said Gulf Coast plans branch openings three years in advance, so it has no immediate intention of participating in the new program. But he said his bank would consider doing so after it rolls out the branches it already has in the works.
The initiative to create a similar program in Illinois is just getting under way.
In January the Illinois Bankers Association assembled a task force of about 10 bankers to suggest incentives that could attract branches to low-income neighborhoods.
"There are geographic pockets, even in Chicago, that don't have any branches," said Joyce Nardulli, the trade group's vice president of government relations.
Making mainstream financial products more accessible to people who live in such underserved areas is a high priority for Illinois Treasurer Alexi Giannoulis, according to Ms. Nardulli.
She said the Illinois group organized the task force at the request of Mr. Giannoulis, whose family owns Broadway Bank in Chicago.
The plan is to meet several times this year to brainstorm "innovative ideas" for making branches in distressed neighborhoods more viable, Ms. Nardulli said. The ideas would become the basis for a bill that the Illinois General Assembly could consider in its spring session next year, she said.
Initially Mr. Giannoulis' office had suggested offering property tax rebates as a lure, but Ms. Nardulli said some bankers did not consider that enough of an incentive, since many companies lease their property instead of owning it.
Lawmakers in California and Texas considered bills to create such programs last year.
David Haithcock, the executive director of the California Independent Bankers, said the bill there stalled in the state Senate, because of the government's fiscal troubles.
But Mark Farouk, the chief consultant to the Assembly Committee on Banking and Finance, said he thinks the bill has a chance to pass before the Legislature adjourns in August.
John Heasley, executive vice president of the Texas Bankers Association, said his state's bill died when the legislative session ended in May, but he expects it to be back on the table when lawmakers return in January.
Rep. Evans of Pennsylvania said the mortgage crisis makes such initiatives particularly timely.
"We're in a climate of things like predatory lending and foreclosures," he said.
The high number of subprime borrowers who have fallen prey to unscrupulous lenders highlights the need for better access to the financial mainstream, he said.
Initially he introduced a bill last fall to create a program like the New York one, and the House Business and Commerce Committee held a hearing on it. He introduced a reworked version of that measure Tuesday.
Beryl Kuhr, counsel for Rep. Evans, said one difference is that the old version called for a property tax break, but the new version would give participants a credit on the state bank shares tax or mutual thrift institutions tax instead. That change was made because bankers pointed out that many branch properties are leased, she said.
The bill has a good chance to pass before the legislative session ends in November, Ms. Kuhr said.
Dan Reisteter, the vice president of government relations for the Pennsylvania Bankers Association, said it is supportive of the bill but considers it a low priority.
Terry Osborne, executive vice president of the $600 million-asset First Citizens National Bank in Mansfield, Pa., said he looked at the initial version of the bill and felt it did not offer enough of an incentive for a bank to put a branch in an area not already under consideration.
"We didn't think it would accomplish the hopeful objective they had in mind," Mr. Osborne said.
But the concept is a good one, he said. "There is a similar initiative out there for supermarkets, and the idea is if you can get a bank and a supermarket there, that would strengthen the economy in those distressed areas."
That is just how Rep. Evans sees it. He said his bill is an extension of his effort to revive urban neighborhoods.
Two "very important" things that many of these neighborhoods lack are grocery stores and banks, he said.
But since the state's Fresh Food Financing Initiative got under way several years ago, 50 supermarkets have opened in areas that had long been abandoned to fast food, Rep. Evans said, and he is hopeful that Pennsylvania can duplicate that success with banks.
