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Sat, Dec

Is the Municipal Bank of Los Angeles Feasible?

LA WATCHDOG - On November 6, 2018, 56% of the City’s voters rejected Charter Amendment B that would have allowed the City to establish a municipal bank. 

This was not surprising because the Los Angeles Times opined that it “is one of the most ill-conceived, half-baked measures to come out of City Hall in years, and that’s saying something.”  

But the idea of a City owned bank is back now that the State passed AB 857 that establishes a framework for establishing a public bank in California.  

In June, the Chief Legislative Analyst, acting on instructions from the City Council, announced that it “is seeking proposals from consultants interested in assisting the City by reporting on the feasibility, benefits, costs, and risk factors in the creation and operation of a public bank.” The proposal deadline is September 2.   

This is an excellent idea since there have been significant differences of opinion as to the feasibility and viability of a bank owned by the City of Los Angeles. 

Proponents believe the City owned bank “would create a public and accountable source of capital for lending and investment in fiscally, socially, and environmentally responsible initiatives that have the potential to improve the lives of residents by enabling greater investment in affordable housing, small business development, infrastructure, and green new deal initiatives like transitioning to a 100% green energy grid and bolstering environmentally friendly public transportation.” 

Opponents are concerned about the credit worthiness of any loan (loans are not grants), the financial viability of the bank, the capital and reserve requirements, startup costs and the time to achieve breakeven, the need for experienced management, the implementation of information technology, independent oversight and governance, the impact on the City if there are losses, and political inference in the allocation of resources.   

As one opponent said, “A public bank is a vehicle for politicians to divert legislatively designated funds into a blind pool to fund noneconomic pet projects and loans to politically connected, uncreditworthy borrowers.  This will result in losses that will have an adverse impact on the bank’s ability to continue as a going concern and on the government’s credit rating.” 

We look forward to the independent and transparent consultant’s report on the feasibility of forming and operating a public bank. 

 

(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee, the Budget and DWP representative for the Greater Wilshire Neighborhood Council, and a Neighborhood Council Budget Advocate.  He can be reached at:  [email protected].)