It’s not often that Berkeley, Calif., a city famous for its progressive values, borrows an idea from the conservative state of North Dakota.
But Berkeley voters next week will consider a ballot measure that would tax property owners to create a public bank, drawing inspiration from a century-old, state-run bank in North Dakota.
If approved, Berkeley would establish a public bank that could offer low-interest loans for community projects, such as affordable housing, and small businesses, proponents say.
There have been efforts over the past decade to create public banks across the country, including in Philadelphia, New Mexico and Los Angeles, but they have run into regulatory and political hurdles. San Francisco, across the bay from Berkeley, also has a public bank measure on its ballot next week, but it would create only a governance structure rather than raise funds through a tax.
The push for banks owned by state or local governments in the U.S. grew out of the Occupy Movement in the early 2010s, as activists sought ways to keep money away from corporations and reinvest local tax dollars into their own communities. Public banks are fairly common worldwide, particularly in China, India and Germany.
Berkeley proponents say that the city of 122,000 residents should have a locally-controlled bank that is socially minded and avoids investments in fossil fuels and weapons manufacturers.
“It feels like the most powerful institutions and people in the world are becoming more powerful and more wealthy, and are controlling more and more of our lives,” said Will Toaspern, chair of the Coalition to Keep East Bay Money Local, which supports the proposal, called Measure Z. “This is about setting up something that is publicly funded with community leadership that focuses on the things we want.”
Opponents say that they aren’t against the public bank concept, but that Berkeley’s proposal is a high-risk experiment that would misuse public money. Though the bank’s funds would be generated from Berkeley residents, its capital would be available to the entire East Bay region. Opponents say that would unfairly saddle the city with real financial risks.
“This is a bad deal for Berkeley,” said Paul Mathew, a longtime Berkeley resident who is part of Affordable Berkeley, a group opposing the measure.
The proposal will appear on a November ballot in California that is already filled with high-profile tax measures. They include one locally to help rescue Bay Area Rapid Transit and other transportation agencies, as well as statewide proposals to impose a one-time tax on the wealth of billionaires and make higher taxes on upper-income earners permanent.
Californians have become stingier at the ballot box, as cost-of-living concerns have mounted. In the state’s June election, voters approved a significantly lower share of tax and bond measures than in recent years.
It’s unclear how those trends will play out in Berkeley, one of a handful of progressive California cities that tend to pass ballot measures at higher rates, said Michael Coleman, a municipal tax expert in the state. The city of Berkeley commissioned a poll in April that found 58 percent of likely voters would support the public bank tax, though opinions may have shifted over the past six months.
Berkeley’s measure would institute an annual parcel tax for six years, starting at 6 cents per square foot for homes, and 9 cents per square foot for commercial buildings. Once the fund has collected $40 million, which is expected to take over four years, the city could apply for insurance through the F.D.I.C., as well as certification from the state.
If approved, the bank would not operate like a retail bank but would instead lend money through partner credit unions and community banks. It would not have A.T.M.s or local branches. The measure limits what could be financed to affordable housing, green energy and infrastructure, and small businesses.
In North Dakota, a public bank was created in 1919 after farmers revolted against out-of-state grain cartels and banks that were charging exorbitant interest rates. The state-run bank has helped to extend credit when private banks would not, such as during the Great Recession or natural disasters. It has offered loans to cities for infrastructure improvements that were about one percentage point below market rate, according to the Northeast-Midwest Institute.
“Banking should be a public utility just like water and electricity,” said Walt McRee, president of the nonprofit Public Banking Institute, which advocates public banks nationwide. “The public’s money needs to be in the public’s hands.”
But David Flynn, an economics professor at the University of North Dakota, said it would be difficult to capture the same benefits in Berkeley because the region already has a competitive lending market and the bank wouldn’t have a narrow focus, like North Dakota’s is on the agricultural economy. A public bank, he said, would be less likely to move the needle on lowering housing costs.
“You can’t just pluck it out as if it’s a Lego piece and drop it in Berkeley or San Francisco,” he said.
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