Public Banking and the Slow Takeover of the Private Sector

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

If the governor says okay, we will soon see public banks established in local jurisdictions pop-up around California, another step of government officials invading the private sector.

The legislature sent to Governor Newsom AB 857 by Assembly members David Chiu and Miguel Santiago to allow for the creation of public banks, controlled by local government entities.

Proponents claimed the banks are needed to help finance infrastructure and housing to attack the state’s housing crisis but it’s clear that supporters want to take money from private banks to drive ideological agendas.

Public banking advocates argue, “Public banks create a stable means to divest public funds and investments from banking organizations and industries that may not align with the values of our communities.” And what are those values? One look at the many endorsers of the bill show practically all are of a liberal bent.

It is not hard to read the motives of public bank supporters. With banks in the hands of the public sector, the money will likely support liberal oriented initiatives.

Private banks, which need to make a profit to survive and will have a new competitor that wants to take big government accounts away from them, study the viability of projects presented to the banks. If the criteria for a loan change to an agenda driven process with less scrutiny to the business side, the results could leave the loan makers in a hole. Who is left holding the bag? Taxpayers, of course.

There are a number of other problems with this effort.

One is the hit the state’s General Fund will take. Private banks pay a 10.84% franchise fee for doing business. Public banks would be exempt from this fee. Revenue in private banks would likely be reduced as public banks eat into their business meaning there will be less money headed to the General Fund.

That’s not all. This from the Senate analysis of the bill: “Exempts a public bank from all state and local taxes and licenses, as well as from state energy resources surcharges, state emergency telephone users’ surcharges, and any tax or license fee imposed by the state on motor vehicles.”

The state likes to regulate business but when the state runs the business then it will dispense with charges that burden private enterprises.

As public entities, the workers will certainly be considered public employees subject to collective bargaining agreements. Bureaucratic rules and regulations come with this development.

Can governments do the job better than private bankers? Stuart Waldman, president of the Valley Industry and Commerce Association (VICA) in Los Angeles County, which opposed the bill, is more than skeptical. “San Francisco can’t handle the homeless crisis, Los Angeles can’t run its recycling business, what makes them think they can run a bank?”

Cities seem eager to get into the banking business with 14 cities endorsing the legislation. One in particular needs special attention.

The City of Los Angeles supported AB 857. What is striking is that when the city went to the voters to approve a city bank with Charter Amendment B in 2018, L.A. voters turned them down 44% yes; 56% no.

By supporting the public bank creation bill, essentially L.A. city officials are going  around the backs and thumbing their nose at their own voters.

The success of AB 857 in the legislature is another example of the attitude gaining strength in California that government knows best.

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