This is the public finance feasibility study we submitted for the City of Vallejo’s participatory banking initiative. We hope that this and our check-cashing project (see previous post) will both be submitted to the voters of Vallejo for funding.
Stronger Democracy, Stronger Bottom Line:
A Feasibility Study of Public Finance for the City of Vallejo
This project proposes a feasibility study of publicly owned and operated financial institutions for the city of Vallejo. When cities are mere customers to Wall Street banks, they often lose money on unnecessary and overpriced financial products and services, and they are rarely able to wield the financial clout that government assets should merit. Creating public financial institutions helps governments manage money responsibly, keep income local, and hold financial costs in check, while providing local communities with affordable financial services and transparent oversight. This study will offer a site-specific and pragmatic account of the types of public finance institutions that will keep profits within Vallejo, expand loan programs to local businesses and contribute to the City of Vallejo’s general fund.
In the slow recovery after the Great Recession, there is widespread dissatisfaction with the current state of banking in America and a corresponding increased interest in complementary options. Cities from San Francisco to Montpelier are taking initial steps to build public banks, while smaller municipalities from Reading, Pennsylvania to Richmond, California are exploring fiscally sound alternatives to Wall Street’s business as usual. This project brings Vallejo into that conversation by commissioning a feasibility study of publicly owned and operated financial institutions that would be appropriate and profitable for our city.
According to a report issued by UC Berkeley’s Haas Institute1, Vallejo is second only to Victorville in the state of California for the highest incidence of negative equity in housing. Nationwide, Vallejo is 25th on the list of 100 Cities with the Highest Incidence of Negative Equity. Because private banks continue to allow our underwater homeowners to languish without redress, public finance institutions are an exciting, emerging alternative.
Vallejo needs public finance alternatives tied to the specific economic needs of our city. Banking laws vary by state and local regulations and charter differences are substantial. Vast differences in local economic and political conditions create demand for certain services in some places but not in others. Thus no public bank can work equally well in every place. This study would recruit a leading expert in the field of public finance to collaborate with local citizens, business leaders and government representatives to explore exactly which forms of public financial institutions would be best suited to the city of Vallejo.
While San Francisco, Santa Fe, Philadelphia, and Seattle, among other large cities, as well as the state of Vermont, are considering full-fledged public banks, the economic and demographic specifics of Vallejo point toward other public finance institutions, as reported by Tom Sgouros2 and introduced briefly below. Each of these would add accountability to specific aspects of financial markets, could save money for city government, and would redirect capital to important local needs. Each is premised on the fact that increasing democratic accountability in our financial system helps governments and the communities they serve.
Community Development Financial Institution Plus (CDFI+)
Vallejo has already successfully established the Grow Vallejo Fund Loan Program and Opportunity Fund, among other community development initiatives. These initiatives could be strengthened and others started with reliable year-to-year access to sufficient capital. Under the CDFI+ model, a pension fund or other part of the government with the ability to make long-term un-collateralized investments could offer equity capital to buy T-bills or make a deposit with the Federal Home Loan Banks. Using this capital as collateral, the CDFI+ could then accept deposits from other parts of the city government and provide a series of laddered investments to the CDFI+. The CDFI+ would enhance already-existing programs that make credit markets more sustainable and responsive to local needs, and thus more accessible to Vallejo’s citizens. It would also provide new opportunities for local economic growth un-tethered to the vagaries of state and national government programs.
Local Financial Service Bureau
Collateral requirements push cities to bank only with large Wall Street firms. But sufficient deposits can be aggregated to fund a stand-alone cooperative that would contract directly with smaller financial industry vendors to manage the City of Vallejo’s accounts. This Local Financial Service Bureau would allow the city to patronize banks that keep money circulating locally, and would offer the city more leverage in demanding better banking service via competitive bidding. In this model, the City of Vallejo can also lead participating banks in a cooperative effort to participate in lending initiatives like citizen energy efficiency or lead and asbestos abatement programs.
Cooperatively Owned Financial Advisor or Underwriter
Governments hire financial advisors because they need expertise in banking and financial markets, but often they cannot afford, or do not have enough need to establish, a permanent staff position. Consequently, cities often resort to the costly advice of experts who have no fiduciary duty to the city or its residents, and even may have a conflict of interest. For instance, Bank of America underwrites bonds, so when a B of A financial advisor suggests floating a bond to the city, who are they working for? A coalition of cities and counties that would include Vallejo would be able to afford to have such expertise on their staff, unconflicted and with the cities’ best interests as their fiduciary and professional duty.
These are just a few of the possible public finance institutions for Vallejo that this feasibility study will explore. This study, conducted by one of the field’s foremost experts, will assess exactly what kinds of institutions would best serve Vallejo, and how to go about establishing them. Once selected, the best options will take time and effort to establish, and will then benefit Vallejo long into the future - until our children’s children are worrying about the economic well-being of their children. This is not the bonus-driven timeline of Wall Street banks; municipal government is in a position to take a longer, more balanced view, for stronger democracy and a stronger bottom line.
1 Haas Institute For A Fair And Inclusive Society, Underwater America, How the So-Called Housing Recovery is Bypassing Many American Communities. Berkeley, CA, University of California, Berkeley, 2014.
2 Tom Sgouros, Checking The Banks, The Nuts and Bolts of Banking for People Who Want to Fix It. Providence, RI: Light Publications, 2014.
This is the proposal which Strike Debt Bay Area submitted through Vallejo’s participatory budgeting process for a vote of the people of Vallejo, along with a detailed budget. We hope to know soon whether or not we got through the screening process, which is the last step before being on the participatory budgeting ballot. If we get through the screening and are selected by the voters, Vallejo will provide a few hundred thousand dollars (really!) to make this happen.
We also submitted a proposal for public finance research, which we will post here soon.
A non-profit community check cashing service in Vallejo would serve the public, especially the unbanked public (usually the poorest residents) by providing an alternative to for-profit check cashing services, without the predatory high fees charges by for-profit check cashing businesses. This business would also provide other services such as assistance in opening bank accounts, financial coaching, credit repair loans, and other financial services to Vallejo’s unbanked and underbanked citizens.
A nonprofit check cashing business, operating with a completely different set of values than market rate stores, can assist low income, unbanked people in understanding their financial situation, saving money, developing improved financial habits, entering the financial mainstream, and moving out of poverty.
Presently, the fringe banking industry (which consists of check cashers, payday lenders, pawnbrokers, rent-to-own stores, car title lenders and similar operations) earns exorbitant profits from the low-income people they claim to serve, becoming an obstacle in the path of anyone needing these services from moving out of poverty. Households using these financial services are often racial/ethnic minorities, immigrants, and/or low-income, paying stratospheric fees and interest rates that transfer a large percentage of the customers’ wages and payments to the business owners. The existing industry provides no mechanism to help low-income customers learn about their own situation, let alone move into the financial mainstream .
In contrast, a nonprofit check cashing storefront can offer the same financial services at much lower costs, leaving substantial funds in the hands of the people who need it. Such a store would provide financial counseling and planning through classes and one-on-one sessions, small business assistance, and referrals to partner banks and credit unions. This organization also would operate with greater transparency, a benefit to its customers and the city of Vallejo.
One of only a tiny handful of nonprofit check cashing stores in the United States operates in Oakland and has been serving the Fruitvale neighborhood for over five years. It is our partner in this proposal. It operates several clusters of programs located in its storefront:
This comprehensive set of services helps households move into the financial mainstream. In Oakland, these programs have already proven to save customers $150,000 to $200,000 annually.
Banks and credit unions are incentivized to partner with nonprofit check cashing businesses because financial services create a cost-effective means of reaching an unbanked or underbanked population. Referrals for store customers to partner institutions can create new, long-term institutional customers. Increased business and revenue may be generated in the short run as customers use the banks’ services, mostly smaller loans and checking/savings accounts, and become more accustomed to working with a conventional financial institution. The nonprofit organization’s financial coaching helps bring more educated customers and businesses to the banks, facilitating the banks’ business model of encouraging their depositors to make larger transactions such as home mortgages, car loans and business loans.
Market-rate stores owners are often absentee, or are part of national corporate organizations; their excess (and excessive) profits are drained from the community. In contrast, customers of a nonprofit check cashing business have more money available because of the lower-priced services, which they can spend on local goods and services; thus, the City’s tax revenue increases, which helps save jobs and fund City services.
The nonprofit check cashing store is designed to generate enough revenue to be self-sufficient after an initial start-up period or to be able to raise grants and donations to cover shortfalls until self-sufficiency can be reached.
Implementing partners: 1
The nonprofit organization which runs the Oakland store will be working with Vallejo residents and others to leverage existing knowledge and expertise in opening a second business. The proprietor of the Oakland store will divide his time between Oakland and Vallejo, at least in the build-out and first operating year of the project, and will be responsible for the setup and running of the check cashing service.
“Postmaster General Donahoe has demonstrated that he lacks the political courageto stand up to Congress and tell them that theycaused this mess and they need to fix it. Instead, time after time, he has chosen to take the easy road and dismantle the USPS piece by piece – whether it is by cutting post office hours, closing post offices, cutting service and delivery standards, increasing postage rates, or now ending Saturday delivery.”
The Strike Debt Bay Area organizing group will meet at Oscar Grant Plaza (aka Ogawa Plaza) in the amphitheater or on the front steps of City Hall, Saturday, July 19, from 3-5:30 p.m. If you have specific questions for a smaller group, or just want to know a few people before the meeting starts, email me at my personal email address below.
Activism on such a big issue can use as many people and talents as we can find. If you are excited by the idea of Strike Debt, and/or our many projects, which include organizing for public banking in Oakland, participating in Occupy San Francisco’s third anniversary convergence, securing funding from the City of Vallejo for nonprofit check cashing and public finance study initiatives, saving the Berkeley Post Office and stopping the Staples non-union takeover of good Post Office Jobs, working with the City of Richmond and other municipalities for eminent domain seizure of underwater mortgages from the banksters, and much more.
Also, we’d love to meet you at Oakland’s First Friday, on July 4, when we will have an information table at the holiday gathering (roughly 4-7 p.m. in downtown Oakland).
Save the date now, so you’ll be free to join us in three weeks!
Oscar Grant (Ogawa) Plaza, Amphitheater in front of Oakland City Hall.
Join Strike Debt Bay Area in working on some exciting projects locally and nationally to fight unjust debt.
In addition, we are exploring the use of a public bank to help Richmond, CA and other communities escape the thrall of Wall Street.
New to Strike Debt?? Don’t walk cold turkey into a bunch of radicals talking about debt! Show up a half hour early—at 2:30 PM—for an informal pre-meeting intro session. If you’d like to attend this pre-get-together please email email@example.com and let us know you’re coming.