Los Angeles voters might OK the creation of the country’s first public bank in 100 years this fall, unlocking an alternative to “too-big-to-fail,” profit-driven banks that critics say prey on Americans each day.
And cannabis might be the key.
On June 29, LA Mayor Eric Garcetti signed off on a ballot initiative to allow for the creation of a publicly owned bank. On the state’s Nov. 6 general election ballot, Angelenos registered to vote can decide whether or not to amend the city charter in order to “allow for the establishment of a municipal financial institution or bank without further voter approval.”
The initiative would put the public interest over banking profits, LA City Council President Herb Wesson’s office told Leafly on Wednesday.
“If passed, the public bank could further enhance services to Los Angeles residents by providing low-interest construction loans for affordable housing and even make small-business loans available for entrepreneurs who are not able to secure startup capital,” said Vanessa Rodriguez, a spokesperson for Wesson, in an email.
“I’m optimistic it’s going to be a pretty bold vision.”
In short, a public bank keeps some of LA’s money in LA pockets and allows for a financial institution designed specifically for the group it serves, supporters argue. As it stands, three out of ten LA residents lack acceptable access to a bank account, according to the advocacy group Public Bank LA. Many un-banked residents are working-class people or immigrants.Traffic Got You Down?
Huge for Cannabis
While the establishment of a municipal bank could provide residents with an alternative to federally backed behemoths, a city bank might solve a major problem for the city’s growing commercial cannabis industry—the biggest in the world. These businesses generate billions of dollars per year in sales but under federal money-laundering statutes remain federally barred from using most traditional banks and lenders.
“The acute issue of cash in the cannabis industry is definitely one of, if not the main reason, this is at the forefront of city leaders’ thoughts,” said David Jette, legislative director for Public Bank LA.
An all-cash regime creates a litany of business problems: You can be robbed, and it’s hard to make payroll, or pay taxes. “Which is, of course, why city leaders are most concerned,” Jette said with a laugh.
Los Angeles will be one day be grossing tens of millions of dollars in local sales taxes, excise taxes, and fees, according to a Leafly analysis of competing cities. Those revenues are currently coming in partly in cash.
California legalization Proposition 64 beefs up security rules at stores, and many operations have their own cash-management protocols aimed at reducing the risk of robbery. But a dedicated public banking option could further reduce risks to stores and customers, and should be enacted immediately, said Sarah Armstrong, directory of industry affairs for Americans for Safe Access.
“Lack of banking services impacts not only operators of cannabis businesses, but is particularly dangerous for patients who are going into these retail outlets with cash and coming out with product,” said Armstrong.
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Wesson first floated the idea of a city-run bank last year, as residents continued to grapple with wide-scale problems with international institution Wells Fargo, which created millions of bank accounts without customer authorization, among other misdeeds. Wesson has also overseen LA’s commercial cannabis regulations, amplifying the need for a financial alternative such as a public bank.
A Long-Overdue Solution
While LA would be the first city to create its own bank in nearly a century, it’s not unprecedented. The Bank of North Dakota opened in Bismarck in 1919 with $2 million in capital and has functioned—with varying degrees of success—as a state-run bank ever since.
There are also dozens of public banking efforts underway across the country now, including in San Francisco, where a 16-person task force is researching the potential of city banking.
Investigating overarching change for the entire Golden State is the Cannabis Banking Working Group, led by state Treasurer John Chiang.
Even if LA residents approve the ballot measure in November, it would be just the first step in the process. Countless hurdles would remain.
City officials released a February feasibility report concluding that a public bank could be subject to interference from state and federal officials. Startup costs would also be “exorbitant,” with “no available source of funds” to cover them.
Wesson is hopeful the city bank could be up and running within three years, spokesperson Rodriguez said.
Jette said an he’s confident an alliance of city leaders and voters on this issue will yield some version of a public bank.
“I’m optimistic it’s going to be a pretty bold vision,” said Jette.
Eligible California voters must registered to vote by Oct. 22 to participate in the Nov. 6 General Election. You may also register conditionally and vote at your county elections office if you miss this initial deadline.
The More You Know
Public Banks vs Credit Unions
Question: So what’s the difference between a “public bank” and a credit union? Aren’t those already an alternative to big banks.
Traffic Got You Down?
Answer: Yes, credit unions are a great alternative to big banks. A public bank is different in that:
- “A credit union’s profits are shared among its member-owners. With a municipal public bank, profits are returned back into the coffers of the city, benefitting taxpayers and residents.
- “Credit unions are also too small to handle city deposits (all of the fees, revenue, and taxes collected). Because credit unions have smaller assets, they would not be able to address economic development plans to finance things like large-scale infrastructure projects.
- “Another difference is that a credit union is a retail bank, where customers can utilize savings and checking accounts and other banking services. The public bank we’re pushing for in Los Angeles is a wholesale bank, or a banker’s bank. It would be a depository for the city, and would partner with community banks and credit unions to expand their credit, and help extend access to services and loans for members of the community.” —Trinity Tran, Public Bank LA