California may move $10 billion of its investment banking funds to rebuild its economy battered by coronavirus and convert the financial arm into the country’s second state public bank.
Assemblymembers David Chiu, who represents San Francisco, and Miguel Santiago, who represents part of Los Angeles, announced Assembly Bill 310 on Thursday to turn the California Infrastructure and Economic Development Bank, known as IBank, into a state public bank.
That bank would eventually allow various agencies and departments in California to make deposits, freeing it from fees and investment choices of big banks. For cities like San Francisco, which is in the process of creating its own local public bank, the state bank would help jumpstart that effort after it was stalled by coronavirus.
“They would have been relying on local monies,” said Chiu of local efforts. “Now all of those jurisdictions have had enormous whacks to their budget. We need a state public bank to ensure the state’s money is going to work for the people.”
The Bank of North Dakota has managed public money since 1919 and is noted by public bank proponents for withstanding recessions while investing in the state. America Samoa opened its own bank in 2018 as an oasis to the banking desert.
The immediate focus of AB 310 is to redirect 10 percent of the IBank’s roughly $99 billion in California’s Pooled Investment Account to state entities and businesses in recovery mode. Once the bill takes effect, it would be able to expand its usual lending capability and dole out loans to help the state economy bounce back.
“We already have the money, it’s invested outside our state” said Sushil Jacobs, senior economic justice attorney with Lawyers’ Committee for Civil Rights in of the San Francisco Bay Area. “I think people recognize that we’re in extremely trying times and now is the time for the state to take the lead in banking.”
AB 310 is co-sponsored by the California Public Banking Alliance and backed by Assemblymembers Buffy Wicks in Oakland and Ash Kalra in San Jose. Chiu and Santiago previously authored Assembly Bill 857, which allows cities to apply for a banking license, which passed to great bank lobbying resistance in October.
Legislation by Supervisor Sandra Lee Fewer would have had a task force submit a business plan for its own public bank by June 2020. Meetings were never held due to coronavirus, according to San Francisco Public Bank Coalition member Kurtis Wu.
While the idea was gaining popularity through the coalition and at City Hall in San Francisco, the investment needed would be significant. The San Francisco Treasurer’s Office has estimated a fully-fledged bank would take $119 million in start-up costs and 56 years to break even. A Budget and Legislative Analyst report is underway to compare cost calculations.
Under AB 310, the financial path to a San Francisco public bank could be simpler. The City is facing a $1.7 billion projected deficit over the next two years.
“If the state bank happens first, it could potentially fund and capitalize these banks,” Wu said. “We believe California needs to have that option because it keeps us independent from Wall Street. We are still pushing for a public bank locally and we are working to figure out how to build the governing structure.”
But time isn’t on the side of bill proponents. Chiu and Santiago acknowledge AB 310 will face great resistance before being passed, all while having just five weeks to gather support and bring it through the California Legislature. Its recess was extended to July 27 and bills must be passed by Aug. 31.
“It will be a fight, there’s no doubt about that,” Santiago said Thursday. “It’s going to be a very quick, brutal process. This is an opportunity for us to reinvest California dollars in California communities.”