City Council Member Derek S. Green has worked for more than four years to establish a public bank in Philadelphia, with the goal of helping underprivileged businesses access credit and manage the city’s money in the city. public interest.
Thanks in part to limitations in state law, the proposal has progressed in spurts. Green’s latest plan, which gained committee approval in December, would first establish a Philadelphia public finance authority that could help underserved businesses immediately seek loans from private lenders and later help establish a separate public bank to hold city deposits.
Philadelphia has long struggled to increase the participation of minority and women-owned businesses in public projects, and Green said it was essential to put in place the financial authority before funding for the Federal Bill on the $ 1 trillion infrastructure adopted this year will only be distributed locally. .
“Even if a company gets a contract, it will need to have access to credit in order to be able to hire more employees and have additional cash flow,” he said in an interview. “And without having access to credit, they won’t be able to do the job. “
Green is hoping to cross the legislative finish line on his bill before Mayor Jim Kenney unveils his budget proposal in March. The bill awaits final approval by the entire Council, but can be amended on the floor before going ahead.
Here’s what you need to know about Green’s plan and how public banks work in Philly:
A public bank is a taxpayer-owned financial institution that holds and lends city money instead of a private bank. Proponents say they make it easier for taxpayers to use their own money to invest in their communities and point out that private banks have a well-documented history of racial discrimination. Critics say public banks are expensive to start up and could open taxpayer funds to tax mismanagement caused by political influence.
For Green, one of the main benefits would be having a financial institution that helps “hard-to-lend” businesses in low-income neighborhoods access credit, thereby reducing racial disparities in business ownership. Although 43% of Philadelphians are black, only 6% of the city’s businesses with employees are black. Likewise, the city’s population is 15% Latinos, but only 4% of businesses in Philadelphia with employees are Latino-owned.
“Many small businesses, especially black and brown businesses, don’t have friends or family who can say, ‘Hey, here’s X amount to help you start your business’ or,’ I’ll be a co-signer. “,” Green said in an interview.
Since the 19th century, public banks have been scarce in the United States, with the Bank of North Dakota, established in 1919, and the 5-year-old Bank of America Samoa, the only major public banks currently in operation.
California recently passed a law allowing state municipalities to create public banks, and San Francisco has taken steps to become the first major US city to create one – if Philly doesn’t beat them.
Unlike California, Pennsylvania does not have legislation allowing cities to directly establish public banks, but Green’s proposal offers a potential workaround.
First, the city would create the Philadelphia Public Finance Authority, a city-controlled quasi-government entity that could issue letters of credit to secure loans to qualified businesses borrowing from private banks.
Later, Green said the city and the financial authority would work together to create a third entity that could directly receive and manage city funds. While state law does not allow cities to establish public banks, it does allow city-related organizations like the proposed Financial Authority to create new entities as special projects, and Green hopes that this will be the way forward for a future public bank.
The bank’s mission could be much broader than helping underserved businesses. The Bank of North Dakota, for example, provides student loans at attractive rates for state residents and for out-of-state natives attending school in North Dakota.
Under Green’s proposal, which is still subject to change, the authority would be overseen by a nine-member board of directors appointed by the mayor.
The board would then select a separate nine-member board that would lead the authority and manage all lending decisions.
Green would also subject the authority to the rules and regulations of the city’s ethics board, which otherwise would not have jurisdiction over the authority as it is a separate entity from the city. This, Green hopes, will avoid conflicts of interest and political influence.
The city can finance the authority in several ways, such as a direct injection of money from the general fund or the issuance of bonds.
And once the authority is funded, it will have options on how to manage its money. With a $ 50 million bond injection, for example, it could hold $ 25 million in reserves while using the remaining $ 25 million to support letters of credit for businesses.
Alternatively, the authority could seek an insurance policy to cover the risk of the credit it grants to businesses that would cost only a fraction of its portfolio, freeing up more of its money to help businesses.