Open Letter to Seattle City Council
Martha Koester, for the Seattle Public Banking Coalition
Public banking is based on the idea that public monies i.e. taxes and fees should be deposited in publicly-owned banks and loaned out in the local area where the bank resides, often through local community banks. Currently, those monies are deposited in large Wall Street banks, invested in T-bills, or other financial investments. The public bank can also finance capital infrastructure projects for the local jurisdiction, whether city, county, or state, instead of the local jurisdiction having to go to the bond markets i.e. borrowing from the big banks. The interest paid on the loan portfolio of the public bank would go back to bank or to the general fund of the jurisdiction. Eventually, the local jurisdiction would become debt-free.
The city of Seattle currently has debt that totals ~ $4.2 billion and an investment fund that is currently ~ $1.4 billion. The city could still have some liquid assets in the investment fund or in outstanding development debt, however the establishment of a municipal public bank would provide a new way of managing some of the city's money for the benefit of our community. It would re-circulate some city government money within the local community with a multiplier effect that could enhance the financial vitality of our community.
Rather than providing the usual consumer banking products, a Seattle public bank would be a banker's bank working in collaboration with local community financial institutions. It could be capitalized with a small fraction of the Seattle current investment fund holdings. Bank officials would be paid normal civil service salaries, not outlandish salaries or huge bonuses. The bank would be regulated by both the state and Federal agencies that regulate private banks. The bank would be conservatively managed and would encourage local private banks as well to do old-fashioned banking and not engage in the exotic practices Wall Street encourages.
The municipal public bank could be mandated to increase lending for socially desirable projects such as affordable housing, local startup business which provide jobs, or solar roof-top collectors at reduced rates that the global or national banks are unlikely to find attractive. With the backing of a municipal bank, the climate would be improved for lending to small, local businesses that have a hard time finding receptive lenders at traditional community or large national banks.
Unfortunately, during the primary campaigns, word came out of City Hall that a Seattle Public Bank would be illegal, with no reason given. This basically stopped discussion of a proposal which before was very popular. Indeed, there are three clauses in the Washington State Constitution, the “lending of credit” clauses, that if read literally seem to outlaw a public bank. But case law has interpreted these clauses as meaning that the public interest must be paramount in judging whether the activities of government are constitutional or not. Interestingly, both the state and city do lend money now using revolving funds. We think a public bank would serve the public interest by keeping our money local and we question whether the current financial system controlled by the big Wall Street banks serves the public interest.
Banks are unique in being able to lend with a multiplier effect, which allows a multiple of its actual capital assets to be on loan at any time. The largest allowable multiple is a number fixed by national regulatory agencies. This makes public banks able to loan out more money than revolving funds which is the way the city loans out money now.
As a candidate for a Seattle City Council position, we are asking for your public endorsement of a proposal to conduct a study of the feasibility of a Seattle public bank, pending a public analysis of the legal opinion put forward by the city. We must analyze the underlying national and state statutory and regulatory framework, decide on the bank's financial goals and outline the mechanics of bank operation. Protocols must be established for partnering with local private institutions, bank capitalization, bank governance, the auditing process and the timeline for establishing the bank.