Contention over new feasibility study leaves prospects for a government-owned bank uncertain

Public bank finance committee meeting September 11, 2018

Friends of the Public Bank of Oakland were all smiles at city hall September 11 as the city council finance committee unanimously recommended to continue considering the creation of a public bank. Photo by Katey Rusch.

For the second time in as many years, Oakland city staffers have recommended pausing efforts to create a multi-city East Bay public bank. And for the second time, city councilmembers appear poised to move forward anyway.

Since 2016, Oakland officials have been exploring the feasibility of creating a government-owned bank. This bank would hold the city’s cash and investment assets, allowing the city to leverage them for the community’s benefit and to earn interest—much in the way that commercial banks invest customers’ deposits to earn profits. It could make loans to small businesses, affordable housing projects, or even the city’s own infrastructure projects. A public bank might also accept deposits from businesses or residents, depending on how it was structured.

Susan Harman, founder of Friends of the Oakland Public Bank, has been advocating for one since 2011. “Instead of going to Wall Street investors and stockholders and being invested in God knows where, in horrible things like pipelines,” she said, “that interest, that bank profit, comes back to its owners: The city.” More than that, she said, it would save Oakland millions of dollars every year in interest and fees that it pays to the other banks servicing its loans.

Cannabis industry representatives, while not as vocal as other groups, are also interested in the potential for public banks to accept their deposits, which few commercial banks will do because cannabis is illegal under federal law.

Because of the cost and effort of creating its own bank, Oakland officials invited their counterparts from other jurisdictions to collaborate. Berkeley, Richmond and Alameda County officials have joined Oakland in considering an East Bay regional bank.

In November, 2016, on a recommendation from Councilmembers Rebecca Kaplan (at large), Dan Kalb (District 1), and Abel Guillén (District 2), the council voted unanimously to ask city administrators to investigate commissioning a public bank feasibility study. City staffers then met with Friends of the Oakland Public Bank for their input. The following June, finance department staffers recommended against moving forward with a feasibility study, preferring to wait and see what happens with similar projects in other cities. Going against that recommendation, city councilmembers later that month approved a 2017-19 budget that included $75,000 for a study. That September, they awarded the contract to Oakland-based Global Investment Company (GIC), an independent firm that provides fiduciary advice. To date, the city has also received donations totaling $58,200 to fund the study, including $25,000 each from Berkeley and Alameda County and $5,000 from Richmond.

The Multijurisdictional Public Bank Feasibility Study, which was publicly released in late August, concluded that a bank is feasible, would not require new legislation except possibly to serve cannabis businesses, would keep government borrowing costs “to a minimum, reversing recent increases in debt service costs,” and “could provide solutions to key unmet financial needs for communities exposed to the public bank.” The study adds that “the potential for jurisdictions within the region to pool resources together in a central bank could be an opportunity for the East Bay and neighboring jurisdictions. A centralized approach creates opportunity to better circulate dollars needed to impact communities.”

According to the study, those pooled assets total $3.3 billion in cash and investments.

The study recommended business planning as a next step to determine the best structure and finer details for a public bank that would meet the region’s needs. But in an informational report given to the city council’s finance committee at their meeting on September 11, city finance department staffers concluded that the study raised more questions than it answered, did not adequately address the study’s framing questions, and did not show the bank to be feasible. They repeated their 2017 recommendation that the city stop spending public dollars exploring the bank, and instead see what happens in Santa Fe, Los Angeles, and San Francisco, where similar institutions are being considered. Currently, only one public bank exists in the United States: the state-operated Bank of North Dakota, which will celebrate its 100th anniversary in 2019.

The staff report states that the study “lacks supporting details,” does not clearly answer questions, and contains “contradictory information.”

“Taken comprehensively,” staffers wrote, “these considerations indicate that a public bank is not feasible at this time.”

Speaking by phone the day after the meeting, Harman said she disagreed with staffers’ conclusions, but said that the study was “very disorganized” and at points difficult to understand. A copy of the report obtained by Oakland North shows that it contains many grammatical errors and that some key points made in the body of the study are not made clear in the summary or conclusion sections. Missing from the report sent by staffers to the finance committee are 29 appendices.

Despite advice from staffers, all four councilmembers on the committee—Kalb, Guillén, Noel Gallo (District 5), and Annie Campbell Washington (District 4)—as well as city representatives from Berkeley and Richmond, expressed their support for continuing to consider the bank. The committee agreed to forward the informational report to the full council, which will receive it at their meeting today.

No action will be taken at today’s meeting, but with further support expected from Councilmember Rebecca Kaplan (at large), who was instrumental in commissioning the study, the council is likely to accept the study and could recommend a business planning process to hash out the details of how a public bank could meet the city’s needs.

“I want to keep the ball moving,” said Kalb at the meeting, echoing the sentiment of his fellow committee members. “I don’t feel a need to move the ball quickly, but I also want to make sure the ball keeps moving in the right direction, and that’s forward.”

During the public comment portion of the meeting, Richmond City Councilmember Eduardo Martinez said, “Richmond has been known to do the improbable and succeed against great odds. This regional public bank can be another success with the help of allies like the city of Oakland, Berkeley, and Alameda County. With this bank we can do much to solve regional problems.”

Berkeley Mayor Jesse Arreguín added his support by sending a letter, which was read to the committee by legislative aide Tano Trachenberg. “The potential of an East Bay regional public bank is transformative,” he wrote. “And an incomplete report, however disappointing, is not enough to let this project die.”

Questions about whether the report was actually incomplete were raised by a number of speakers at the meeting, including GIC CEO Cathy Jackson-Gent, who was visibly upset that the 29 appendices—which she said provide substantial details and answers to questions raised by city staffers—were not included in the reports made available to councilmembers or the public.

Councilmember Campbell Washington, speaking to city staff about their recommendation, said, “It’s very clear what you’re trying to do is protect the city’s assets and you’re doing your job in making sure that we think clearly through these issues, because they are very much on the cutting edge and there isn’t a clear path forward.” Directing her gaze to Jackson-Gent, she added, “There’s a lot of work to be done on the clear path forward that you see.”

The council chambers were filled with public bank supporters, including about a dozen representing Friends of the Oakland Public Bank. Several of the 16 people who addressed the committee named Oakland’s list of divestment commitments as a significant reason to consider a public bank. Oakland officials voted to divest from fossil fuels in 2014, and in 2017 voted not to renew the city’s banking contract with J.P. Morgan Chase over concerns that it was invested in the Dakota Access Pipeline and private prisons. That decision was immediately reversed due to staff concerns over where to move Oakland’s cash.

“The problem is there is no bank that exists that will work with the values that Oakland holds,” Margie Lewis told the finance committee, wearing a Friends of the Oakland Public Bank t-shirt. Lewis referred to Oakland’s recent Equity Indicators Report (released in July by the city’s new Department of Race and Equity), which gave failing scores to the city in many areas she said voters care about: affordable housing, homelessness, education. “A public bank will reinvest in the community,” Lewis said. “This reinvestment means money to build the deeply affordable housing we need, offer help and solutions for homelessness, give support to small businesses, job creation, and relief of student loans, to name a few.”

Two commenters representing the cannabis industry spoke at the meeting in support of the public bank. This industry’s inability to bank is among the top reasons California cities are considering public banks, which some people believe could accept deposits from those businesses. (The study itself was less clear on this.) Most banks will not touch money from cannabis companies, because marijuana—while legal at the local and state level—is still prohibited as a Schedule I drug under federal law. Financial institutions report to the Federal Deposit Insurance Corporation (FDIC), which is bound by federal law, placing banks at legal risk if they accept deposits from cannabis businesses.

The “unbankability” of most cannabis businesses has raised two public concerns. First, those businesses are paying millions of dollars in state and local taxes in cash, which government staff must then manually process. Additionally, the people delivering those deposits risk their own safety by carrying such large amounts of money.

Oakland’s Harborside, one of the nation’s largest dispensaries, paid $1.7 million in taxes to the City of Oakland in 2017, according to Harborside co-founder dress wedding (who prefers not to capitalize the letters of his name). Although not present at the meeting, wedding said in an interview with Oakland North that in 2017, his company delivered that money in weekly increments of about $50,000. The cash—which he described as $20 and $50 bills in a plastic deposit bag the size of a manila envelope—was delivered to Oakland City Hall by armored car. Did that seem like a lot of effort for a such a small package? “$50,000 every week is an easy target,” he said.

Once, wedding said, he personally carried $100,000 in cash to the Internal Revenue Service office in San Jose. He said he only felt comfortable revealing this information publicly because his team no longer delivers taxes in cash: The company recently found a credit union willing to accept their deposits. “But it’s costly,” he said. While a standard business account might charge a few hundred dollars in monthly fees, he said Harborside pays $2,750 each month for their account, on top of a more than $10,000 “due diligence fee” to open the account in the first place. Most other cannabis businesses, from growers to dispensaries, do not have the resources to foot this kind of expense, wedding said.

The feasibility study notes that the legal obstacles preventing banking by cannabis businesses could also affect a public bank’s ability to safely accept their deposits. Wedding said that while he once had high hopes that a public bank could accept deposits from Harborside and similar businesses, he has grown less certain that this could happen soon. “Given the risk factors that regulators perceive around cannabis cash, they’d need to see the bank prove itself in handling business in general before they would consider taking on that particular risk,” he said.

California Senate Bill 930, which would have allowed the state to license private banks to handle cannabis cash and could have opened a path for a public bank to do the same, cleared the state senate in May, but was rejected by the assembly in August.

Some, including Harman, believe that a public bank could accept cannabis cash anyway—after all, she said, the city accepts their tax payments, depositing that cash at J.P. Morgan Chase without repercussions. Even if a public bank could not immediately meet cannabis companies’ needs, wedding still strongly supports the creation of an Oakland public bank, which he said is a “great idea for the community” and would benefit the city’s budget.

As her organization pushes for new state legislation to remove hurdles for a public bank, Harman hopes that interest in public banks has reached a tipping point. She noted her recent experiences interviewing mayoral and city council candidates on behalf of a local newspaper: “Literally every single candidate, no matter how conservative or radical, supports [a public bank],” she said. “It’s in the air. And I giggle when these candidates say how long they’ve supported public banking, but the serious part of it is that in January, there will be someone sitting in the mayor’s chair, all of whom support the public bank. We have three council seats up for election, so in January those three new council members or incumbents all support the public bank. So it’s happening, regardless. You’d better just get out of the way.”

Oakland’s full city council will discuss the feasibility study report at their meeting today. For the project to move forward to business planning, an action item would later need to come before the council. That action item is not yet scheduled.

Katey Rusch contributed reporting for this story. 

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