Tomorrow, City Council is expected to discuss Derek Green’s bill making Philadelphia the first big city in the nation to ultimately operate a public bank. So let’s get the glib objections out of the way: Do you really have confidence that a city that didn’t reconcile its bank statements for seven years can reliably take taxpayer money and play banker with it? Do you trust that an administration repeatedly challenged by the blocking and tackling of governance—picking up the trash, for instance—can smartly invest your money in small businesses without going belly up?
And is it really wise for a city that can’t keep its citizens safe or pick up litter on its streets to be in so many side businesses? Gas, water, airport—Philly has kept its hand in businesses other cities long ago sold off or leased and privatized. (One recent study found that Philadelphia could generate $3.8 billion by leasing the Philadelphia International Airport.)
Is it really wise for a city that can’t keep its citizens safe or pick up litter on its streets to be in so many side businesses?
Seen that way, Green’s bill seems kind of fantastical, no? But Green deserves credit. He’s one of the few big-picture thinkers in city government; I first became aware of him when, as a first-time candidate, he talked of floating social impact, or “pay for success,” bonds to invest in distressed areas, a public-private partnership that has rendered equitable economic growth gains elsewhere.
That proved too heavy of a lift for Philly, so Green—who, it is suspected, has mayoral aspirations—pivoted to a more traditional progressive idea: The city as banker, using public dollars to invest in small businesses.
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He makes a strong argument for the need. He runs through the history of red-lining and other evidence pointing to a massive underinvestment by lending institutions in Black and Brown businesses. He shares my outrage that, in a city that is 45 -percent Black, only 2.5 percent of businesses are owned by African Americans—6 percent when you include sole proprietorships. That’s a stunning figure, pointing to widespread inequitable opportunity and investment.
For Green, who I caught up with on Monday, the panacea is credit. “We’re really trying to address a niche that has not been addressed before—access to credit,” Green told me. “Most Black and Brown businesses don’t have friends and family that can invest in them, and they turn to things like payday lending that charge them an arm and a leg. This is about using city dollars to help grow Black and Brown businesses.”
How much taxpayer money is at risk?
Okay, let’s run through the context. There is really only one example of a successfully run public bank in North America—the 100-year-old Bank of North Dakota. The progressive proponents of public banking point to the success of BND, but fail to note that it’s what’s known as a “banker’s bank”—meaning it loans to other banks, not directly to businesses or citizens. It is essentially a backstop for its partner banks. (And, inconveniently for its progressive fans, a good amount of its largesse is spent on the fossil fuel industry).
So why is BND the only public bank out there? Two dozen others, after all, have closed or failed over the last century. “Countless public bank proposals have been abandoned over the years because banking is a really expensive, complicated and risky business,” explained a 2019 Los Angeles Times editorial opposing the establishment of a public bank there. The Times cited a San Francisco study concluding that $119 million in startup funding would be needed, along with $2.2 billion in public subsidies before a public bank could break even — in 56 years.
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Part of the problem is that, if the mission as Green has articulated it is to serve people who, for whatever reason, don’t currently qualify for commercial bank loans, you inevitably incur more loan defaults. Twice I asked Green how much taxpayer money would be put at risk and what his projected default rate is—and twice he couldn’t answer me.
“That’s part of what the capitalization process is going to tell us,” he said. “We’re looking at that now.”
Really? We’re about to pass the legislation and we don’t actually know yet how much of taxpayer money is at risk? In LA, (where 58 percent of the public voted against a public bank), citizens were told the projected default rate was a mere 0.1 percent—a ridiculously low number, given that 15 percent of Small Business Administration loans go bad.
Let’s be clear about the risk here: Public banks are not supervised by federal banking regulators. Without FDIC insurance, a public bank is wholly backed by the full faith and credit of the city in which it resides; there is no bank-funded Deposit Insurance Fund to shoulder the risk. You, the taxpayer, are now on the hook. You cool with that?
Is the public bank route really the best way?
Green got his start as a loan officer at Meridian Bank in North Philly. When he first started pushing the idea of a public bank a few years ago, there may have been a stronger need for it. But lately, in light of the long overdue push for investment in Black and Brown communities, there are a slew of funds and organizations that have popped up with the express purpose of freeing the flow of capital (and much-needed social capital) into the communities Green has rightly targeted.
Exactly how a public bank will fit in with that ecosystem—friend or foe?—is very much an open question. Will, for example, PIDC, Philly’s premier public/private partnership economic development corporation, take kindly to the city swimming in its waters? Democratic socialists ludicrously call for PIDC’s abolishment, despite the fact that major strides in equity advancement like the groundbreaking $1 billion commitment to diversity, equity and inclusion made by Mosaic Development Partners and Ensemble Real Estate Investments at the Navy Yard would not have been possible without PIDC and its president, Anne Nevins.
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By fighting for a public bank, is Green pandering to the left, which has, in contradiction to all evidence, vilified PIDC? Moreover, widen the aperture of your lens and you find an economic development ecosystem that is newly vibrant; as we’ve chronicled, there are many firms seeking to get capital into struggling, predominantly minority communities.
Some, like Della Clark’s Innovate Capital Fund, are equity investors. Others provide loans, just as Green prescribes. For example, there’s the Accelerator Fund, a nonprofit loan fund that’s raising $100 million for historically disadvantaged developers and affordable housing projects.
Then there’s the $100 million GRIT fund—The Philadelphia Growth, Resiliency, Independence, Tenacity Fund—which represents the stepping up and coming together of about 30 financial institutions to provide loans through Community Development Financial Institutions (CDFIs) to Black and Brown businesses. Why not have the city support the work they’re doing, instead of getting into the banking game itself?
Widen the aperture of your lens and you find an economic development ecosystem that is newly vibrant; as we’ve chronicled, there are many firms seeking to get capital into struggling, predominantly minority communities.
“We’re not going to replicate the work of the CDFIs,” Green explains. “But if a business needs $1.2 million, a CDFI might not have the resources to match that. We can write a letter of credit and guarantee the full $1.2 million. We intend to work in tandem with the CDFIs.”
That may be Green’s intent, but the inclusive growth economic development ecosystem is eyeing the councilmember’s moves with some trepidation. Why not, say, invest directly in GRIT itself, rather than have to go through all the rigamarole of setting up (yet another) public authority to run the city’s bank?
That alone raises a red flag. All those public banks that went under or didn’t get off the ground the last 100 years? Many failed thanks to corrupting influences and political pressures put upon public bank executives by the elected officials who appointed them. Cue Casablanca’s Inspector Renault: I’d be shocked, shocked if that were to happen here!
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“I’ve consulted with the Board of Ethics for some time on this, and it’s in the legislation that the Board of Ethics would have oversight over both boards—the corporate board appointed by the mayor, and the policy board selected by the corporate board,” Green says.
That sounds good, but, c’mon…this is Philly, man. We were told the Land Bank was going to be pure, too, remember? And yet councilmanic prerogative’s grubby little hands are all over that once-innovative policy, too.
Alternatives to the public bank
There are some simpler and cleaner plays here. One would be to, say, do what 2015 candidate Kenney pledged to do and free up $90 million through zero-based budgeting and invest that money into a Marshall Plan for Black and Brown Philadelphia—making strategic investments in GRIT and the others who are already on the ground doing this work.
Another would be to invest in Black-owned banking. There are 4,000 banks in America—and, astonishingly, only 21 owned by African-Americans. Here, we have one—United Bank of Philadelphia—and it’s needed bailing out in recent years.
But there’s a Black-banking movement afoot nationally. Case in point, DC’s City First Bank, the largest Black-led Minority Depository Institution (MDI) in the nation with over $1 billion in assets and over $700 million in deposits, not to mention a mission to use “finance as a force for good.”
It’s a CDFI and a Certified B Corp; what it isn’t is beholden to a board of political appointees. Keep in mind, Jim Kenney once named his chiropractor to head the zoning board (before said chiropractor was convicted of public corruption.) What are the chances we’re going to see men of virtue with banking expertise as opposed to apparatchiks on the public banking board, regardless of what the Ethics Board tells Green now?
Seven years ago, during the 2015 mayor’s race, the prospect of a Philadelphia public bank was floated by Senator Anthony Williams and fellow candidate Nelson Diaz. The two promptly started sniping at each other about who had the idea first—instead of actually discussing the idea. But it prompted the late legendary public intellectual Jeremy Nowak, The Citizen’s founding chairman, to weigh in on the possibility, and rereading his take sure makes one wish we still had his clear-eyed leadership.
As he wrote:
There is no substantial public banking tradition in the United States. And it is doubtful that this is going to change at least as it relates to consumer services or small business lending. It is the private sector, often in partnership with the public sector and civil society that forge institutions and partnerships to expand credit and banking services along those lines…Here in Philadelphia, PIDC and Ben Franklin Technology Partners are strong examples of publicly-funded investors. The Reinvestment Fund (an institution I ran for many years) is an exemplary community development lender. We now have a growing movement in the United States of socially-motivated lending institutions: Organizations with a public purpose and private market discipline. It makes sense to utilize them to expand credit options.
In my life, I often play the WWJD game: What Would Jeremy Do? Well, I think it’s pretty clear when it comes to the public bank idea currently before council. He’d applaud Green for his seriousness, for his hard work, for his civil nature, and for consulting the right people, including State Secretary of Banking and Securities Richard Vague.
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But then, just when you thought this interaction with Jeremy would be mellow and chill, that sly smile of his would start to curl up on one side of his mouth, signaling it was button-pushing time. Jeremy would accuse Councilmember Green of jumping the gun on recreational marijuana, because, he would say, you’ve got to be smoking something to think this government could pull something off like you’re proposing.
Someone, Nowak always argued, has to be willing to say the fact that sits right there before all of us, even if a body of finger-to-the-wind pols with mayoral ambitions conveniently refuses to see it.
Correction: A previous version of this story misstated what action City Council would take on Councilmember Green’s bill. The bill is on Council’s schedule, but Green says they are not expected to vote on it Thursday as he is still writing amendments to it.