May 06, 2015
Philadelphia mayoral candidate Anthony H. Williams has kicked off a debate lately about the possibility of a municipal bank that would help close a credit gap between Center City and other less blooming corridors of the city.
Although Philadelphia founded America's first public bank in 1780, and today a comparable example is the Bank of North Dakota, Williams' proposal still seems far-fetched to some. As Next City reports, critics of the idea are wary of city government managing a bank when the public finds so many other issues in its domain to be inadequately addressed.
Beyond that, knowledgeable commentators such as The Reinvestment Fund's Jeremy Nowak, who is also the former president of the William Penn Foundation, seem to think that adapting the strategies behind venture capital and mutual funds would be a better approach to uplifting stagnant communities and giving new businesses a firm foundation.
In an op-ed for PhillyMag, attorney Otis Bullock gives several reasons to dispel the idea that a public bank is somehow quixotic or at least not a viable way to help local business. The piece suggests that Philadelphians are scared of the idea because they simply don't think big enough, avoiding risks instead of envisioning rewards. Bullock cites the Pennsylvania Public Bank Project to clarify that the City of Philadelphia would only create the bank, not run it.
“Public banks are chartered to serve the public not exploit it. Hence, there are no mega salaries, bonuses or commissions to provide incentives for imprudent risk taking. The business model of public banks means that its profits are returned annually to the municipal general fund and reinvested in growing the partnership loan portfolio. This helps balance the operating budget without raising taxes, cutting vital programs, taking on more debt, asking for givebacks from employees or raiding pension funds.”
By creating a lender that serves the public at reliable, often below market rates, the city could spur economic development, help create jobs and effectively reduce public debt. And because such a bank "would return profits to the municipality as non-tax revenue," Bullock argues that additional capital can be leveraged to address specific projects like affordable housing, infrastructure, business development, and education.
Next City notes Anthony Williams is doubtful that existing financial institutions (some of which a public bank would theoretically partner with to extend loans) will on their own take action to address the needs above if they haven't done so already. In the meantime, some communities have become stagnant without sufficient support to sustain growth.
“We [have] older and more established businesses on those corridors who have not grown in a generation, because they have not had access to capital,” says Williams. “They pay their bills. They pay their taxes. They are good stewards. They just have not had the ability to increase themselves, because they have not had access to capital.”