Legislation introduced Monday could lay down the foundations for the creation of public banks in California and provide an alternative to San Francisco’s use of profit-driven commercial banks.

Currently there are no public banks in California, and no legal avenues to create one. But Assemblymembers David Chiu, D-San Francisco, and Miguel Santiago, D-Los Angeles, hope to change that with the introduction of Assembly Bill 857, which would allow jurisdictions to create public banks through a charter process.

The idea of a publicly-owned bank has gained traction in recent years as advocates and elected officials have called upon The City to divest its $11 billion budget out of commercial banks and into community centered projects that would better reflect San Francisco values.

“Wall Street banks have invested in oil pipelines, gun manufacturers, private prisons and companies with unfair labor practices,” Chiu said at a news conference Monday. “The opposite of what our state stands for.”

Continue reading on SF Examiner.

FOR IMMEDIATE RELEASE

Los Angeles, CA/San Francisco, March 11, 2019 – Asm. Miguel Santiago (D-Los Angeles) and Asm. David Chiu (D-San Francisco) held press conferences in their respective districts on Monday to introduce a new bill that will make it easier to establish regional and municipal public banks throughout the state of California.

The California Public Banking Alliance (CPBA) is sponsoring the legislation. CPBA designed the bill to provide localities a flexible framework for establishing public banks with appropriate terms, exceptions, and constraints.

“Public banking is one way we can start restoring economic power to our communities,” said Sushil Jacob, Senior Staff Attorney for Economic Justice with the Lawyers’ Committee for Civil Rights of the San Francisco Bay Area, one of CPBA’s founding members. “Wall Street banks routinely deny small business owners of color access to the credit they need to grow their businesses. When business owners of color do manage to get these loans, the fees and interest rates are often higher. These discriminatory patterns must end and the City can lead the way in providing an alternative.”

AB 857 will mobilize capital to take on the affordable housing goals that Assemblymembers Santiago and Chiu have already come together to champion.

“The public’s money should be used for public good.  Time and time again, we have seen big banks invest our money in institutions most Californians are opposed to–oil pipelines, gun manufacturers, private prisons, and companies with unfair labor practices.  This legislation allows us to take a first step towards ensuring the public’s money is reinvested in our local communities,” said Asm. David Chiu in a statement released this week.

Asm. Miguel Santiago released the following statement, “It’s pretty obvious that the Wall Street system of wealth distribution has created an income inequality crisis and nowhere is that more visible than right here in my district, where luxury condos loom over Skid Row. Instead of making rich men even richer, our resources should be invested in community development: parks and green spaces, free community college, new schools, smooth roads, and cleaner air. With AB 857 we’re laying the groundwork for a financial system that will give Californians access to capital they can afford, and empower communities to invest in projects that improve everyone’s quality of life.”

Around the country, as political discourse escalates on how to fund ambitious proposals for social equity and environmental justice, AB 857 may be one of the most important bills to watch.  This legislation will pave the way for reducing the cost of living in California.

“Wall Street Bank are financing climate destruction and they are doing it with our tax dollars,” said Doug Norlen, Director of the Economic and Policy Program at Friends of the Earth. “Public banks can invest our money into sustainable community projects right here in California instead of lining the pockets of Wall Street and Big Oil.”

CPBA is a coalition of grassroots public banking advocacy groups pushing for regional and municipally-owned public banks across California. Member groups include the San Francisco Public Bank Coalition, Public Bank Los Angeles, Public Bank East Bay, South Bay Progressive Alliance, Public Bank Santa Barbara, Public Bank San Diego, People for Public Banking Santa Cruz, Orange County Public Banking Coalition, and Friends of Public Banking Santa Rosa. Beneficial State Foundation, Friends of the Earth, and Lawyers’ Committee for Civil Rights of the San Francisco Bay Area are also members of CPBA.

Press Contact:
Sylvia Chi
sylviachi@gmail.com
(443) 977-4992

Originally posted in Medium.

Dianne Feinstein, our Senator, had a viral moment on Friday, February 22, when a video circulated online of her lecturing Bay Area children about why she does not support the Green New Deal. The children were her constituents, on a visit to her office as part of an action coordinated with Sunrise Movement Bay Area, a youth-led climate movement. Sen. Feinstein told them, “There’s no way to pay for it,” and went on to detail how her decades of political experience informed her pessimism on the Green New Deal.

Sen. Feinstein presented the activists with a draft of her alternative resolution, which calls for the United States alone to eliminate greenhouse gas emissions by 2050, far short of the Intergovernmental Panel on Climate Change’s warning to limit global warming to 1.5°C. (Sen. Feinstein has since abandoned this resolution, and Senate Democrats have introduced a simpler “unity” resolution on climate change.)

In contrast, the Green New Deal proposal incorporates economic, industrial, and social justice policies to effect deep, systemic change to decarbonize the country in one decade. And as the name suggests, this type of massive transformation and government intervention has a precedent in the original New Deal, which rescued our country from the worst impacts of the Great Depression. As explained by economist Stephanie Kelton and others, the federal government paid for the New Deal’s massive public investments by exercising its financial sovereignty and creating credit via the Federal Reserve. Moreover, as public banking expert Ellen Brown has highlighted, during the New Deal, the federal government’s Reconstruction Finance Corporation (RFC) lent over $2.5 billion in agricultural loans, backed vast infrastructure investments, and re-stabilized the economy through emergency loans to states and for disaster relief.

The Green New Deal relies on a network of public banks — like a decentralized version of the RFC — as part of the plan to help finance the contemplated public investments. This approach has worked in Germany, where public banks have been integral in financing renewable energy installations and energy efficiency retrofits. And it’s an idea that has taken root in California: last November, over 430,000 Angelenos voted in favor of amending Los Angeles’ city charter as a first step towards a public bank, and Oakland, Berkeley, Richmond, and Alameda County have completed a favorable feasibility study. Sen. Feinstein’s own state director, Jim Lazarus, is a member of San Francisco’s Municipal Bank Task Force, which just completed a year’s worth of research into public banking and is presenting the San Francisco Board of Supervisors a range of public bank models to choose from. The Board — of which Sen. Feinstein used to be a member — recently unanimously passed a resolution in favor of the California Public Banking Alliance’s state legislation for a new charter that will allow cities and counties to establish their own public banks.

How will local or regional public banks help pay for the Green New Deal? They will make low-interest loans for building and upgrading infrastructure, deploying clean energy resources, transforming our food and transportation systems to be more sustainable and accessible, and other projects. The federal government can help by, for example, capitalizing public banks, setting environmental or social responsibility standards for loan programs, or tying tax incentives to participating in public bank loans.

Most importantly, as one of the young activists in the video pointed out, the cost of inaction (or insufficient action) far outweighs the cost of implementing a paradigm-shifting program like the Green New Deal. The Green New Deal’s job training, research and development, retrofitting and infrastructure investments, and technology deployment will stimulate and make our economy more resilient and better adapted for the more frequent wildfires, storms, and heat waves we face right now.

Sylvia Chi is a member of Public Bank East Bay and chair of the legislative committee of the California Public Banking Alliance.

The Board of Supervisors urged the state to create a public banking charter on Tuesday, its first formal show of support for a movement to break from Wall Street.

Supervisors unanimously co-sponsored and approved a resolution that backs publicly-owned bank and called for state legislators to allow local jurisdictions like San Francisco to proceed. Supervisor Sandra Lee Fewer introduced the resolution days the same week the Treasurer’s Office released its draft report of what a public bank could look like.

A public bank is enticing to advocates like the San Francisco Public Bank Coalition who say the city’s $11 billion budget would be better invested in affordable housing, small business, clean energy, and student loans. Big banks have been known to invest customer funds in things San Francisco opposes like oil pipelines, immigrant detention centers.

Former Supervisor Malia Cohen set off a municipal bank task force that began meeting in 2018, culminating in a report supervisors will weigh in the next couple of months. Days before leaving office, she held a hearing on banking options presented in an initial report that was criticized for not going far enough and instructed them to think big.

The Treasurer’s Office updated the draft report, which task force members took up at their final meeting on Thursday. Though there’s still details left to be worked out, three models could see a bank that purely invests, purely divests from Bank of America and US Bank, or does both.

“In Sacramento, they really are eager and curious to know what stance San Francisco is going to take on this,” said Sushil Jacobs, a task force member who works with the California Public Banking Alliance. “We’re looking to pass legislation and counties to pursue charters to pass their own legislation.”

Continue reading on SF Weekly.

On Monday, February 4, ten activists from the California Public Banking Alliance went to Sacramento to attend a hearing on public banking, convened by Assembly Member Monique Limón (chair of the Assembly Banking and Finance Committee) and Assembly Member Cecelia Aguiar Curry (chair of the Assembly Local Government Committee).

Before the hearing, we had several meetings with people concerned with public banking, including a very productive long meeting with a key staff member in State Treasurer Fiona Ma’s office.

The hearing itself featured two speakers from state government (Department of Business Oversight Commissioner Jan Lynn Owen and Treasurer Fiona Ma), both of whom spoke about exercising fiduciary care and responsibility in managing taxpayer money and licensing all banks, including public banks.

They were followed by two public bank advocates — our own Sushil Jacob, and Dick Mazes, an advocate for transforming California’s Infrastructure and Economic Development Bank (the “iBank”) into an entity that could take deposits from cities and counties, and handle them the way it currently handles about $500 million in state money. The iBank is not really a bank, but a revolving loan fund providing loan guarantees and conduit bonds to California projects needing funding.

The third panel consisted of two bankers and two county treasurers. The representative of the California Bankers Association (the voice of the big banks) claimed that governments can’t handle the security and compliance requirements that banks deal with every day. (He neglected to mention the problems with security and massive disregard of compliance which the Wall Street banks are known for.) The county treasurers of Yuba and San Francisco counties both spoke about careful management of taxpayer money and the requirement to avoid risk. And a representative from the California Community Banking Network (who also sits on the California Bankers Association board) spoke approvingly of the help the state of California currently provides to community banks.

Public comment was short, and very positive about public banking.

We find it notable that while every speaker was concerned with minimizing or eliminating risk and protecting public funds, the only speaker who actively disagreed with the concept of public banking came from the California Bankers’ Association. And when Assembly Member Limón asked him if the banks were willing to engage in self-reflection about why so many Californians are dissatisfied with the current state of banking, all he could say was “We’re willing to learn more about that.” And he heard some answers in public comment, such as “stop investing in fossil fuels” and “stop prioritizing shareholders and profits over the people who are giving you their money to handle.”

***

In the immediate wake of our positive experience in Sacramento, the San Francisco Board of Supervisors unanimously passed a resolution calling on the Sacramento legislators to pass a resolution clearing the way for the Department of Business Oversight to give charters to public banks.

https://publicbankeastbay.org/2019/02/06/sacramento-lobbying-san-francisco-support/

Response to California Cannabis Public Bank Feasibility Study

California Public Banking Alliance
info@calpba.org

January 15, 2019

VIA EMAIL AND U.S. MAIL
State Treasurer Fiona Ma, CPA
915 Capitol Mall, Suite 110
Sacramento, CA 95814

Dear Treasurer Ma,

We write in response to the publication of “State-backed Financial Institution (Public Bank) for the State of California Servicing the Cannabis Industry Feasibility Study 2018,” (hereinafter “Feasibility Study”). Each of the undersigned is involved in municipal or regional public banking advocacy efforts in Los Angeles, San Francisco, the East Bay, Silicon Valley, Santa Rosa, Santa Cruz, Eureka, and San Diego, and together have formed the California Public Banking Alliance to coordinate our advocacy work on the state level.

First, we applaud the State Treasurer’s Office for grappling with the difficult and urgent issue of banking access for California’s cannabis industry, and for recognizing that public banking can provide solutions to failures in the private-sector banking industry. We deeply appreciate your office’s leadership role in uplifting public banking as a policy option.

Unfortunately, we were disappointed with the methods used and conclusions reached in the Feasibility Study and are concerned that the promise and potential of public banking was misunderstood by the Feasibility Study authors. The Feasibility Study failed to analyze public banking models as distinct from conventional, private-sector banking models. In addition, its analysis of legal risks did not account for several countervailing factors and created an inaccurate portrayal of the legal risks associated with establishing a public bank that serves cannabis-related businesses. We urge the State Treasurer’s Office to continue its work on a state cannabis bank concept and take a more proactive role in advocating for policy change on the federal level.

1. The Feasibility Study misunderstood public banking.

As we described in our March 2, 2018 letter to your office, the key promise and potential of public banking lies in “addressing commercial banking market failures.” Clearly, private-sector banks’ refusal to provide banking services to California’s regulated cannabis industry constitutes a market failure. However, the analyses of the three public banking alternatives examined in the Feasibility Study all proceed under assumptions and factors as if a state cannabis bank were simply a conventional bank that happened to be owned by the state. This misunderstands the purpose of public banking.

The Feasibility Study fails to account for the costs to the public of failing to provide banking access to California’s cannabis industry. As you know, because cannabis-related businesses are locked out of banking services, these businesses and their employees are forced to rely disproportionately on cash transactions, making them attractive targets for robbery and creating a significant risk to public safety. Essentially, the continued cannabis banking crisis externalizes the costs of a cash-based industry, including increased crime, to the general public.

The cannabis industry’s over-reliance on cash also complicates state and local governments’ ability to collect fees and tax revenue. Businesses must dedicate resources and possibly contract with armored car services just to pay taxes, and likewise, state and local agencies must dedicate resources to managing large cash payments. Moreover, paying taxes and fees in cash makes it easier for unscrupulous actors to avoid paying their full tax liability; making these payments by conventional business means (wire, check, credit card) would likely increase revenue collection by both the state and localities.

The failure to thoroughly normalize the cannabis industry by integrating it into the “transparent, regulated, tax-paying part of the California economy,” as the Feasibility Study puts it, sets back the state’s ongoing efforts to regulate the cannabis industry – another cost to the public. Cannabis-industry operators are forced to seek clandestine banking services, which may be terminated by the bank without notice at any time, or use large amounts of cash to pay employees, vendors, and bills. These unconventional business practices contribute to the continued stigmatization of the cannabis industry, a vicious cycle which encourages the continued viability of the illicit cannabis market.

These costs, while not necessarily easily quantifiable, must be accounted for in any analysis of potential public policy solutions to the cannabis banking crisis. While private-sector banks may not consider the effects of their business choices on public safety or government revenue collection, it is decidedly in the interest of the State of California to take them into account.[efn_note] The Feasibility Study inaccurately describes California’s cannabis industry as “nascent.” While the robust regulatory system established by Proposition 64 and following legislation is relatively new, California first legalized cannabis for medical use over twenty years ago, with Proposition 215 in 1996. Many businesses in the state’s cannabis industry were established under the Prop. 215 scheme and some have been struggling with bank access for over two decades. [/efn_note] The need for the state to act becomes more acute with the threat of future adverse policy changes by the federal government.

In conceiving of and analyzing the three public banking alternatives, the Feasibility Study placed unwarranted focus on retail banking models, to the detriment of its analysis of correspondent-banking models, such as that used by the Bank of North Dakota (“BND”).

The Feasibility Study’s “detailed” narrative analysis of the correspondent bank model consists of just two paragraphs. The Feasibility Study states that “[i]t is unlikely that respondent banks would use the public correspondent bank for its non-cannabis services,” but provides no evidence or reasoning to support this conclusion. The idea that respondent banks would have no interest in availing of a public correspondent bank’s non-cannabis-related services is belied by the example of BND, which partners with a thriving network of community banks and credit unions to provide services including agricultural and business loans.[efn_note] Mitchell, Stacy. “Public Banks: Bank of North Dakota,” Institute for Local Self-Reliance (July 2, 2015). https://ilsr.org/rule/bank-of-north-dakota-2/. [/efn_note] The Feasibility Study correctly notes that “the correspondent bank option requires that existing respondent banks agree to enter the cannabis banking market” (see Feasibility Study at D-61). Indeed, a public correspondent bank would incentivize private-sector respondent banks to provide services to cannabis-related businesses by lowering those respondent banks’ barriers to entry to cannabis banking.

A public correspondent bank could also be the locus of data-sharing among regulators and respondent banks to serve Know-Your-Customer and Customer Due Diligence needs, one of the recommendations of the Cannabis Banking Working Group, convened by your office.[efn_note] “Banking Access Strategies for Cannabis-Related Businesses,” California State Treasurer’s Office (November 7, 2017). https://www.treasurer.ca.gov/cbwg/resources/reports/110717-cannabis-report.pdf [/efn_note] A public correspondent bank could also provide reporting and monitoring services in compliance with the 2014 guidance issued by the Financial Crimes Enforcement Network (“FinCEN”) for banking with cannabis-related businesses.[efn_note] “BSA Expectations Regarding Marijuana-Related Businesses,” FinCEN (February 14, 2014). https://www.fincen.gov/resources/statutes-regulations/guidance/bsa-expectations-regarding-marijuana-related-businesses  [/efn_note] While existing financial institutions balk at the prospect of following this guidance due, in part, to the high cost of compliance, the public benefit from resolving the cannabis-banking crisis should more than account for the compliance costs.

In addition, the Feasibility Study’s discussion of two retail-based public banking alternatives relies on a number of unfounded assumptions, two of which we address here. With regard to the first retail bank model, wherein the public bank would provide direct retail services exclusively to cannabis-related businesses, the Feasibility Study asserts, without any supporting evidence, that “the availability of clandestine banking, however fleeting it may be, would still offer competition to the bank and would require that the pricing [of banking products and services] be relatively in line with pricing for standard business banking products and services” (see Feasibility Study at D-7). In fact, we are aware of cannabis operators who currently pay a premium to secure a stable banking relationship, and it is likely that many others would do the same if the opportunity were available.

The second retail banking model addressed by the Feasibility Study is a retail bank which serves cannabis-related businesses along with other entities in which only 10 percent of deposits would be from non-cannabis sources. The Feasibility Study assumed this small percentage of non-cannabis deposits because it “would anticipate that the public bank will have limited appeal to individuals unrelated to the cannabis industry” (see Feasibility Study at D-56). Predictably, with such a small fraction of non-cannabis deposits, the model is found to be unacceptably concentrated in the cannabis industry. However, the assumption of “limited appeal” of deposits in a state-backed financial institution is completely unsupported. The Feasibility Study fails to consider the possibility of a state public bank holding some of the state’s own deposits, let alone the deposits of local agencies. As we described in our March 2018 letter, there are many other unmet banking needs which necessitate a state public bank and/or network of regional public banks.

2. The Feasibility Study’s analysis of legal risks is inadequate.

Although the public is not privy to the full legal analysis provided by the Office of the Attorney General, the assessment of legal risks contained in the Feasibility Study is inadequate in scope and creates a distorted image of the relevant legal risks.

In general, the public statements made at the the release of the Feasibility Study in combination with the discussion in the Feasibility Study of legal risks invoke unfounded fear, uncertainty, and doubt about criminal liability, especially for individuals employed by the state. For example, the Racketeer Influenced and Corrupt Organizations Act (“RICO”) was repeatedly invoked, even though the Feasibility Study admits that “[s]tate and local governments are generally immune from RICO civil liability because they cannot form the necessary criminal Intent.” Moreover, while much is made of the Federal government’s authority to impose civil and criminal forfeiture, as well as civil monetary penalties, on banks and bank employees or officers, the Feasibility Study is silent on whether or how often such enforcement actions actually occur, in other words, the likelihood of federal enforcement.[efn_note] We believe that FinCEN’s 2014 guidance has contributed to an increase in cannabis-related financial transactions occurring through private channels, out of the view of regulators. It is likely that this trend would grow under the Feasibility Study’s recommendations. [/efn_note] In fact, the Federal government has not, to our knowledge, seized any bank accounts, nor penalized any banks, of the various state agencies, cities, and counties – in California or in other states with laws regulating cannabis – which collect taxes and fees from cannabis-related businesses.

Indeed, while the Feasibility Study only glancingly mentions the partial “safe harbor” provided by the Federal government through its 2014 FinCEN guidance for banking cannabis-related businesses, there is no mention of the fact that Congress has adopted an appropriations rider expressly forbidding the Department of Justice (“DOJ”) from spending funds to prevent states’ implementation of their own medical cannabis laws. A federal Court of Appeals has held that this appropriations language – which has been renewed in every continuing resolution funding the Federal government since its initial adoption in 2014 – means that the DOJ may not prosecute defendants who are fully compliant with state medical marijuana laws. United States v. McIntosh, 833 F.3d 1163 (9th Cir. 2016).[efn_note] While these appropriations riders are not a permanent fixture of the United States Code, it is extremely unlikely that Congress would fail to renew such a rider in upcoming funding measures. [/efn_note]  Thus, contrary to the Feasibility Study’s assertion that bank employees could be federally prosecuted for aiding and abetting the sale of cannabis under the federal Controlled Substances Act, such prosecutions would be limited to adult-use cannabis only, which in practice, have not been brought under the current federal Administration.

The Feasibility Study focuses on legal risks associated with operating a public bank that serves cannabis-related businesses, when a more appropriate inquiry would focus on the legal risks of starting-up a public bank that serves cannabis-related businesses.

3. Preparation for a California Cannabis Bank should be used to advocate for policy change on the federal level.

As former State Treasurer John Chiang noted in his letter introducing the 2017 Cannabis Banking Working Group report, the cannabis banking problem can be approached as a continuum, with full federal legalization of cannabis as an endpoint, and legislation shielding financial institutions serving the cannabis industry as a stop along the way. One way to progress toward these goals is to proactively engage with the federal government and assert our state’s interests in the federal system. If California took steps towards establishing a public bank to serve the cannabis industry, federal regulators and elected officials would be forced to acknowledge the urgency of the cannabis banking crisis.

The Feasibility Study aptly notes that state employees would enjoy immunity from federal prosecution under the First Amendment for “petition[ing] the Government for a redress of grievances.” Thus, “[t]here should …be no criminal liability for the state or any state employee for preparing for review a bank business plan and presenting it to the federal government for review” (see Feasibility Study at D-33). There is no legal risk associated with taking steps to start a public bank that serves the state’s cannabis industry.

As discussed extensively throughout the Feasibility Study, the process of establishing a bank and gaining approval from the relevant regulators generally takes multiple years. If the aim of the undertaking is to persuade the relevant stakeholders to effect policy changes like removing cannabis from the Controlled Substances Act or protecting financial institutions that serve state-regulated cannabis businesses, then that multi-year process means there is more time to build pressure on Congress and the Executive Branch to solve the cannabis banking crisis.

We urge the State Treasurer’s Office to follow the Feasibility Study’s recommendation at D.1.8.6 – i.e., to seek a formal written opinion from the Department of Business Oversight as to whether a public bank could be established under the existing Commercial Bank Charter. The State Treasurer’s Office could then begin to develop a business plan to submit to the Federal Reserve in order to receive a master account.

Based on the experience of Fourth Corner Credit Union in Colorado, it seems unlikely that the Federal Reserve will issue a master account to a financial institution that plans to serve cannabis-related businesses as a core part of its customer base. Regardless, the very act of developing a business plan for a cannabis-serving bank with the imprimatur of the state with the largest economy in the country would serve the purpose of helping to set the policy agenda at the federal level.

We recognize that to continue to pursue a public cannabis bank in the face of the barriers identified in the Feasibility Study is a daunting task. However, we believe that this is exactly the type of challenge that demands the visionary thinking and bold leadership for which you are known.

We hope that your office will consider our feedback and suggestions in determining next steps in addressing the cannabis banking crisis in our state. Thank you for your attention and dedication to this matter.

Sincerely,

Sylvia Chi
Chair, Legislative Committee of the California Public Banking Alliance

Sushil Jacob
Lawyers’ Committee for Civil Rights of the San Francisco Bay Area
Participant in the San Francisco Municipal Bank Feasibility Task Force

Jackie Fielder
Kurtis Wu
San Francisco Public Bank Coalition

David Jette
Trinity Tran
Ben Hauck
Public Bank LA
Revolution LA
Divest LA

Shelly Browning
Debora Hammond, PhD
Julia Hawkins
Philip Beard
Friends of Public Banking Santa Rosa

Susan Harman
Lou Rigali
Public Bank East Bay

Jake Tonkel
South Bay Progressive Alliance

Jeff Olson
Public Bank San Diego

Erica Stanojevic
People for Public Banking Santa Cruz

Emma Guttman-Slater
Beneficial State Foundation

Doug Norlen
Friends of the Earth U.S.

Marc Armstrong
Commonomics USA