A Philadelphia Public Bank
Like cities and states all across the United States, Philadelphia faces chronic budget shortfalls. The problem has worsened during the Great Recession, but it was there before the recession began and it will persist after the recession eases - whenever that might be.
And like other cities and states, Philadelphia is working to meet the challenge with the same tools as in previous years, having to choose its own poison: cut services, lay off, seek employee give-backs, take on more debt or raise taxes.
The mayor proposes a new tax, on soda beverages. Arguably, this was not as bad as some other taxes, because it will be paid not only by city residents, but by everybody who travels into the city.
But you have to ask, what about next year? A tax on soft pretzels? Cheese steaks?
There is an alternative for the long term, a new tool for the municipal finance tool kit which City Council has taken up, along with other city councils and mayors from Manchester to Trenton, Pittsburgh to Santa Fe and Seattle to Oakland: creation of a municipal public bank.
The model is the almost 100 year old state owned Bank of North Dakota (BND).
The BND in not a retail, commercial bank. It does not compete with the local community banks and credit unions for deposits or borrowers, but instead partners with these financial institutions and uses their existing infrastructure to get affordable credit into the community, for new businesses and mortgages.
It makes direct low interest loans to school districts, invests with state agencies in infrastructure and consolidates student loans at below market rates.
In 2015, the BND partnered with local financial institutions, municipalities or agencies to help more than 300 new and small businesses and hundreds of new homeowners, construct roads and water systems, build new schools and rehabilitated more than two dozen existing schools, in a state with a population about half that of Philadelphia.
A public bank can also assist municipalities to re-finance existing debt at significant savings, providing a reduction of the debt service paid by taxpayers.
Because it is not a retail bank, a public bank has no branches, tellers, ATMs or retail advertising. It provides no incentive in the form of bonuses and commissions for risk taking. This low cost business model is profitable. The profits -- at the BND, tens of millions of dollars a year -- return every year to the general fund as non-tax revenue.
In its 2015 Annual Report, the BND posted an 18.1% return on the state's investment in the bank. That is easily 250% greater than the returns Philadelphia or any city earns on its pension funds and other investments.
And the public bank holds the state's or city's deposits safely away from the risk ridden, failure prone Wall Street banks, while providing municipal banking services at lower cost. Security and savings.