Los Angeles voters will decide next month whether to nudge along the budding movement to create a public bank owned by the city.
The choice is a seemingly modest one: whether to alter the City Charter to allow L.A. to createa“purely commercial” enterprise.
City Council President Herb Wesson, who first floated the idea of a municipal bank more than a year ago, said the ballot measure is simply a way to gauge whether Angelenos want officials to explore a public bank before the city goes to the trouble of hammering out a detailed plan.
“If people say, ‘We don’t want you to do this,’ then we don’t move forward with it,” Wesson said.
But public banking advocates nonetheless see Charter Amendment B as a potential watershed moment — one that could help shape the debate about public banks for years to come.
If the ballot measure passes, advocates say it would bring fresh momentum to the public banking movement, as Los Angeles could be the first jurisdiction in the U.S. where voters have signed off on the idea.
There are only two public banks in the United States and its territories: the Bank of North Dakota, which was founded nearly a century ago, and the recently formed Territorial Bank of American Samoa, which was created after commercial banks decided to stop doing business in the seven-island territory.
Economic justice groups and other advocacy organizations have backed the idea of financial institutions owned by cities or states as an alternative that could save money on banking fees, avoid risky financial schemes and predatory lending, refinance public debt at lower rates and generate profit that could be invested to help the community.
Backers have pointed to recent scandals at Wells Fargo, which admitted to creating as many as 3.5 millionunauthorized accounts, as an example of the ills of the financial services industry.
They have also highlighted the successes of the Bank of North Dakota, arguing that it successfully weathered the last recession without the bailouts that went to Wall Street banks, andhas returned tens of millions of dollars in profits to state coffers.
The ballot measure is “the first step in a process where Angelenos will decide what kind of bank they want to put their money in — the Wall Street banks that crashed the economy and invest in guns and oil — or a public institution that invests in Los Angeles,” wrote David Jette, legislative director for Public Bank L.A., a local group advocating for the measure.
But skeptics say voters should not give the green light before the city has spelled out how much forming a municipal bank would cost and how it would operate.
“The city of Los Angeles can’t run a recycling program,” said Valley Industry and Commerce Assn. President Stuart Waldman, alluding to the turbulent rollout of a new system for trash hauling. “So why would we think they can run a bank?”
Wesson said he expects that any move to form a bank would come back to Angelenos for another vote on the details. Even if voters back the measure, creating a public bank would be far from a sure thing. City analysts have warned that ensuring public funds go into such a bank could necessitate more changes to the City Charter and state law.
That has not reassured critics such as Jack Humphreville, a neighborhood council budget advocate who wrote the ballot argument against the measure, which he derides as a“blank check” that could lead to a poorly run and financially risky operation.
Humphreville has pointed to the failures of the shuttered L.A. Community Development Bank as an example.
That entity, which made loans but did not take deposits or provide other banking services, had a “politicized” loan process that “distorted decisions so as to favor politically connected borrowers,” Cal State Northridge economics professors wrote.
Backers, in turn, argue that the municipal bank could be protected from political pressure with an independent board.
Wesson, who has his own financial problems, stressed that council members would not be running the bank themselves and there would be a “firewall” to prevent interference. Those and other details, he said, would be determined once voters decide if they want the city to move forward.
“We need to think more outside of the box,” Wesson said. “This will create a conversation not only in Los Angeles, but throughout this country, on the upside and downside of public banking.”
Mayor Eric Garcetti, who supports the initiative, said if it passes, “we’ll need to take a serious look at how feasible it would be to create, fund and maintain such a bank in a responsible and effective way.” Councilman Paul Krekorian, who heads a council committee focused on the budget, has not taken a position, his spokesman said.
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