San Francisco Moves Toward Public Banking

Voters in San Francisco will have a chance to weigh in on a public bank proposal this November, following city supervisors’ recent approval to put the measure on the ballot.

If approved, this would make San Francisco the first city in the United States to set up a municipal bank. Currently, North Dakota is the only state that has a significant public banking system.

However, the proposal leaves some unanswered questions, particularly regarding the bank’s physical location. The estimated startup costs stand at around $325 million, amidst a daunting budget deficit of $643 million that the city currently faces.

Supervisor Alan Wong, who voted against placing the measure on the ballot, expressed concerns about the city’s ability to manage its financial institutions effectively. “At a time like this, asking voters to involve the city of San Francisco in the management of its financial institutions is asking for a trust that the city does not yet have,” he noted.

Jackie Fielder, a Socialist Party Supervisor who recently returned from mental health leave, indicated that future legislation might generate revenue. Advocates are eager to push forward before a state law that permits public banks expires in 2028.

Misha Steyer, speaking on behalf of the San Francisco Public Bank Coalition—a group founded by Fielder—described the initiative as a valuable addition to the city’s options. “This is the culmination of many years of campaign efforts,” Steyer remarked.

Supporters argue that a public bank could finance housing projects that are currently stunted due to lack of funds and also help meet climate goals and support local businesses.

Fielder emphasized the importance of accountability, stating, “This will ensure that we have an institution run by real bankers who are accountable to public priorities and public policy priorities.”

Supervisor Sian Chen, who proposed the measure, highlighted the goal of creating a bank that focuses on community reinvestment. “Let’s use every tool at our disposal to keep our cities affordable and drive an economic recovery that leaves no one behind,” she said.

The proposed bank would be managed by qualified bankers appointed by a supervisory board chosen by local officials. While it won’t provide a definitive revenue stream right away, the measure aims to outline the bank’s mission and guidelines within the city charter. Notably, it includes a provision against lending to fossil fuel companies or weapons manufacturers.

Yet, questions remain about how to cover the initial costs. Fielder had previously pursued a different ballot measure aimed at higher taxes on lending companies to support such banks, but that initiative was abandoned. Now, the focus shifts to this new measure.

In the current political landscape, introducing new taxes may be tough. Just this June, voters in other progressive areas voted against increasing taxes on high-earning executives.

The North Dakota public bank generates revenue mainly through collections of state taxes and fees, with little reliance on donations from residents due to a policy against competing with private sector banks. The North Dakota model has seen success, but it primarily benefits from the state’s oil boom.

However, public bank deposits lack federal insurance, making North Dakota responsible for any associated risks. California’s laws mandate federal insurance, adding another layer of complexity since no public bank in a city has tried for approval before.

Experts believe that replicating North Dakota’s success will depend heavily on securing adequate funding. San Francisco’s focus on sustainable technology and housing may not yield immediate returns.

“There may be a role for the government, but we need to realize that the money will not come back,” one expert pointed out.

Critics have raised concerns over potential political favoritism inherent in public banking. In 2016, North Dakota’s bank faced backlash after funding police responses to protests linked to the Dakota Access Pipeline.

In San Francisco, similar fears have emerged regarding how loans and financial products might be distributed. Garry Tan, a tech leader, voiced skepticism about the bank’s management, suggesting it could devolve into a poorly run operation lacking transparency.