The Anti-North Dakota

Written by: 
Aubrey Freedman

Never content to rest until San Francisco’s government runs every aspect of our lives, supervisors Malia Cohen and Sandra Fewer recently requested the formation of a municipal city bank task force to study and advance the idea of a San Francisco public bank.  The idea has been around since the financial crisis of 2008 and is catching on more these days with the problem of legalized recreational pot in California and banking laws like the Bank Secrecy Act of 1970 that obligate financial institutions to report suspicious activity, which includes pot financial transactions that are still illegal under federal law.  While it is understandable that the new law has created a problem with the incompatibility of current banking laws (a problem created by government), is it really necessary for one of the most bureaucratic bureaucracies in the nation—if not the entire planet—to stick its big nose into another industry?  The politicians think so, and their hearts are aflutter with even the mere thought of San Francisco becoming the first city in the country to launch a government bank. 

The reasons touted for the necessity and advantages of a San Francisco city or county government bank are many.  First and foremost, private banks are motivated by profit (evil), while a public bank is non-profit (angelic), which means lower interest on loans to borrowers.  Secondly, the goal is to get away from the big banks, which are heavily invested in fossil fuels, a political no-no on the left.  The return of profits would go back to The City, not greedy shareholders, so it could mean lower costs for capital projects, which are usually funded by issuing debt through private banks.  Supervisor Fewer noted that a government bank will insure more social responsibility such as more loans to small businesses and more “affordable” housing.  A San Francisco government bank would also allow The City to increase its financial services and “help” residents and “underserved populations.” 

Currently the only government bank in the country is the state-owned and operated Bank of North Dakota (BND), which has been around for almost a century.  It is often cited as proof that a government bank can operate and still be profitable; thus BND is held up as a model to emulate.  All State of North Dakota funds are constitutionally required to be deposited in the bank.  Citizens may make deposits in the bank, but this is a small part of the bank’s business.  The bank only has one location and does not offer ATM services.  The BND partners with more than 100 North Dakota community and regional financial institutions that provide loans to local businesses and citizens.    While the bank is generally given high marks for being well-run and helping North Dakota maintain a local banking sector that is doing better than its neighboring states and the national average, it should be noted that much of its below-market lending is to the fuel fossil industry, and much of its credit risk has been shifted to the federal government through its federally guaranteed student loan program.

What has worked quite well in the heartland of America would likely be a disaster in San Francisco.  For one thing, BND has purposely made it a point not to compete with the voluntary banking sector, but rather to partner with voluntary banks on various projects.  This would not be the case in San Francisco, where there would be a big push to get rid of all the other banks in The City.  Secondly, for the most part, BND is run on a for-profit basis.  The bank evaluates lending according to how likely the loans are to be repaid.  As the BND’s President and Chief Executive Eric Hardmeyer noted, “If you are going to have a state-owned bank, you have to staff it with bankers.  If you staff it with economic developers, you are going to have a very short-lived very expensive experiment.  Economic developers have never seen a deal they didn’t like.  We deal with that every day.”  Clearly, politics, political appointments, “public-private” cozy arrangements, and cronyism would determine who would be running a San Francisco government bank—and how the taxpayers’ money would be disbursed.  It goes without saying that a government city bank would require a whole new “Department of Banking” in San Francisco’s already bloated government—as if over 41,000 (and growing every month) city employees weren’t enough already.  More foot soldiers would be needed to staff yet another bureaucracy. Already, the Tax Collector’s office, which does all the banking and investment activities for The City, recently hired a new staff member to help study a public bank and other investment strategies.  An excuse to hire even more employees is a tantalizing dream for those who want San Francisco government to be even more powerful.  The statists would use a public bank to allow The City to increase its financial services to, as always, select residents.  During the last fiscal year, The City spent $3,771,663 on financial services for “underserved populations,” including $1.5 million for a college savings program called “Kindergarten to College,” $832,000 for smart money “coaching,” and $756,000 for “technical assistance” to small businesses. As of July 2017, there were $86 million in loans outstanding for the current programs.  The report prepared for Supervisor Fewer pointed out that the current programs “could be enhanced or added to though the level of funding that could be made available for such purposes from City funds now deposited with The City’s commercial banks could significantly expand funding available for such purposes.”  “Expand” is an understatement if we’ve ever heard one—having a City bank would open the floodgates to fulfilling every social dream of the bureaucrats.  Short of having control of the printing press for money printing, a public bank is a statist’s Nirvana with untold possibilities.  And, as we’ve seen in other areas like transportation, energy, and education, The City’s leaders have done everything they could to drive out the voluntary sector until the government has a complete monopoly on all services.  Creating a public bank would be an ideal opportunity to rid The City of the evil, private banks.  OK, banking isn’t exactly laissez-faire these days, but would a government-run-and-owned bank be any less susceptible to politics rather than sound financial decision-making?  We think not.  Worse still, at least with private banks which make poor loan decisions and are facing default, they have to ask for a bailout from the government (unfortunately often given), but with a “public” bank, there would be no asking for bailouts, and the taxpayers, as always, would get stuck paying for the bureaucrats’ mistakes.  The pressure in a leftist city like San Francisco with embedded cronyism to fund every social program in town with new-found “free” money would simply be too great to pass up.  Rather than looking to expand its “carbon footprint” in the lives of its residents, San Francisco’s government should return to basics and save its taxpayers from one more misguided way to “lead the nation.”

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