THE MUNICIPAL BANK OF LOS ANGELES
The Los Angeles Public Bank is a non-profit lending and depository institution owned by the City of Los Angeles and operated in the public interest. Its deposits come from public income that the city receives, including taxes, license and permit fees, and traffic and parking tickets. Local governments can borrow directly from a public bank without the need for expensive intermediaries on Wall Street. Public banks differ from private banks in that they are required to serve the needs of the region they serve and leverage their deposit base and lending power to benefit residents, rather than prioritizing profits for private shareholders.
The Los Angeles Public Bank will allow the city to align its financial decisions with its values by supporting targeted, long-term investments in infrastructure that can help to build a green transportation network. It can also provide streamlined and efficient financing to support the development of 50,000 units of affordable housing. In addition, by investing local public pension funds locally, the bank can help to multiply wealth across generations.
The Los Angeles Public Bank will be owned and operated by the public, and its democratic governance structure will prioritize the needs of low-income communities of color in its operations and long-term strategy. By creating a transparent, public platform to guide the use of city funds, the bank will serve as both a tool for civic engagement and a means of implementing participatory budgeting. This approach will ensure that the bank is responsive to the needs and concerns of the community it serves.
The Los Angeles Public Bank will have the ability to leverage funds up to 10 times their value. For example, $150 million in federal funds could be used to provide $25,000 loans to 10,000 businesses or start-up funding for the development of 50,000 units of housing (assuming a $1 million predevelopment loan is required for each 50 units). Money spent at small businesses stays within the local economy and helps to build wealth within the community. By providing flexible, low-interest loans to affordable housing developers, the public bank can help them move quickly to purchase and preserve existing affordable housing units.
HOW THE LOS ANGELES PUBLIC BANK WORKS
- The California Public Banking Act (AB 857) allows charter cities like Los Angeles to store their funds in a public bank instead of a private bank. This includes money that city departments, like the treasurer's office, receive in the form of taxes, fees, fines, and funding from state and federal programs.
- The Los Angeles Public Bank is well-positioned to provide affordable loans for community projects like affordable housing, climate-resilient infrastructure, and small business support due to its lower overhead costs. Any profits earned by the bank can be reinvested back into the municipality's general fund. This arrangement allows the public bank to offer loans at lower interest rates compared to traditional financial institutions.
- The Los Angeles Public Bank will function as a "mini-Fed" for the region, providing support to local banks and underwriting loans. It will act as a "banker's bank," working in partnership with community banks and credit unions to offer loans. This arrangement can increase the lending capacity and stability of local banks.
- The Los Angeles Public Bank will be able to fund local projects at a lower cost by partnering with small banks, credit unions, and Community Development Financial Institutions (CDFIs). As a self-funding and self-sustaining institution, it will not put state funds or tax dollars at risk. This feature makes public banks a particularly attractive option for municipalities and charter cities looking for an alternative to traditional financial institutions.
- The Los Angeles Public Bank will be managed by experienced professionals and overseen by an independent board of directors to ensure that it is not influenced by special interests. This structure is designed to protect the bank from political interference and allow it to serve the needs of the community. To obtain approval for its charter from state and federal regulatory agencies, the bank will need to provide a governance plan demonstrating its independence from political influence.
- To ensure that community concerns are taken into account, the Los Angeles Public Bank will establish citizen advisories to monitor its investments. These advisors will have a role in shaping the bank's decision-making and ensuring that it is responsive to the needs of the community.
BUSINESS AS USUAL IS NOT WORKING
Currently, the City of Los Angeles spends over $340 million a year in banking fees and more than $1.35 billion in interest to borrow from large international banks. It also has over $2 billion invested in petrochemical companies and multinational banks, supporting private profits at a public cost. By issuing and purchasing its own debt through municipal bonds, the city could save up to 50% on debt-related expenses and fulfill its “fiduciary duty” to invest locally. These bonds are often a safer investment than even triple-A-rated commercial debt (Moody’s).
Affordable housing projects in Los Angeles often require as many as 12 different sources of capital from various local public agencies, leading to complicated financing that makes these projects more expensive and prone to delays. To streamline and centralize the financing of affordable housing, the city needs a reliable public financial infrastructure.
Small and micro-businesses, particularly those owned by people of color, often struggle to access loans and are neglected by traditional banks. Federal and state regulation does not sufficiently encourage banks to serve the needs of low-income communities. As a result, black business owners were twice as likely to close their businesses during the pandemic.
The City of Los Angeles does not have a direct banking relationship with the federal government, leaving it completely reliant on the commercial banking network to finance itself. This arrangement is more expensive and less predictable in times of crisis. The Bank of Los Angeles will provide the city with a reliable public financial infrastructure that it can rely on.