A bill that would allow some municipalities to establish their own banks in California edged through a state committee Wednesday.
The legislation, Assembly Bill 857, passed the Senate Governance and Finance Committee on a 4-3 vote with the support of Chairman Mike McGuire, D-Healdsburg.
Authored by Assemblymen David Chiu, D-San Francisco, and Miguel Santiago, D-Los Angeles, the bill would allow local governments of a certain size to create publicly owned banks with the goal of divesting from large banks invested in the fossil fuel industry, private prisons, and other industries while investing local tax money back into communities.
Municipalities could also band together to create joint powers authorities under the bill.
McGuire did not speak extensively in support of the bill during the hour-long discussion but pushed back against doubts voiced by Sen. John Moorlach, R-Costa Mesa, that publicly run banks could end up resembling other struggling public projects like the beleaguered California high-speed rail project.
“I think it’s important to note that the state would not be running the bank — it would be local governments,” McGuire said. “It just baffles me that while the state has challenges, I encourage you to go take a look at Mississippi. I encourage you to go take a look at Kentucky, I encourage you to go look at New Mexico. Look at several other states. See how they run, the challenges they have, then compare it with California.”
Opposition to the bill also came from the California Bankers Association and the Association of County Tax Collectors and Treasurers. Jason Lane of the bankers association expressed concern that while the bill would require any public bank to have Federal Deposit Insurance Corp. insurance and conduct other due diligence before opening its doors, all banks takes losses.
“When you have an erosion of capital due to loan losses … will the state have to step in and backfill those losses?” Lane asked.
Chris Petlock, who serves as the chief financial officer for the Valley of the Moon Water District in the Sonoma Valley and is a member of Friends of Public Banking Santa Rosa, backed the bill.
He said the 2017 North Bay fires exposed how much infrastructure work needed to be done in his district and said a public bank could offer loans to municipalities like his at lower interest rates than large financial institutions.
The bill now goes to the Senate Appropriations Committee for consideration.