b. Municipal Bank and City Enterprises

Simply restructuring the city’s economic development activities and making them more democratic and accountable are not enough. The city needs to think big in order to take charge of its economic future. Rather than sending its savings elsewhere, and depending entirely on the private sector, with its boom/bust cycles, the city needs to look to its own assets and strengths, and develop a strategy to reinvest locally. Two places to begin with are the city’s savings, and the potential to develop city run enterprises.

1. Create a municipal credit union with a portion of the $2.8 Billion in City assets.

The first new proposal is the plan for the formation of a municipal bank (the Credit Union of San Francisco) with the capacity to eventually investment up to $500 million of low-interest, loans in alternative forms of development in San Francisco, prioritizing nontraditional business models, in particular, worker associations, worker-owned and managed enterprises, producer collectives, etc. that can sow commercial viability and the ability to manage a reasonable load of low-rate debt.

The city needs to create a funding mechanism through a municipal credit union, to reinvest in the city, and to directly affect access to credit for local businesses and community economic development goals. The credit union would have a responsibility for supporting community-based economic development models, including community corporations, cooperatives, and community financial institutions. A Charter Amendment may ultimately be required to make this happen.

The City and County of San Francisco currently has assets totaling slightly over $16.1 billion. Total liabilities of the City at year-end of 2008 were $9.6 billion, yielding a net worth, or assets minus liabilities, of $6.5 billion. Approximately $2.8 billion of the City’s assets are held in the general-purpose pooled fund in liquid instruments – government treasury debt, securities backed by mortgages guaranteed by Fannie Mae and Freddie Mac, and time deposits at large commercial banks. Approximately $2.1 billion of this fund is designated specificity to the general-purpose government fund. This liquid portion of the City’s current assets is intended to provide a safeguard against any unanticipated revenue shortfalls. Should demands for payment for any purposes incurred in the execution of the City’s approved budget temporarily exceed revenues, the Treasury will sell short-term government securities. The proceeds of these sales can be shifted into the City’s bank deposits. Conversely, if current revenues exceed expenses for a given day, these ‘surpluses’ will be used to purchase additional government securities. The City currently has a very ample cushion to cover any future revenue shortfall.

We propose that a portion of these liquid investments be sold and/or transferred to the CUSF over the period of 3-5 years, up to a certain total amount, perhaps $500 million.[i] Initial proceeds from sales would be used to provide the initial equity investment into the CUSF. Additional assets transferred from the City Treasury to the CUSF would provide the latter with an initial asset pool offset by a long-term debt of the Credit Union to the City of an equivalent amount. The City would, in effect, become a long-term investor in the CUSF. The funds provided through transfer of City’s liquid assets into the CUSF would be supplemented over time by attraction of additional demand deposits, savings deposits, and a range of interest-bearing money market instruments such as money market accounts. Over time, portions of the government securities held by CUSF would be liquidated as needed to provide funds for extending low-interest, long-term loans for projects located in San Francisco.

In keeping with the social equity goals set out in the CUSF’s founding documents, the CUSF would vigorously engage in attempt to raise additional funds from social investment funds and foundations. Loans, particularly those for affordable housing and community-based investment, would be leveraged to the maximum extent through use of foundation grants, low-income housing tax credits, and state and federal grants. It is anticipated that the total asset portfolio consisting of loans and other investments could eventually approach $1 billion. This would represent a significant infusion of loan capital into currently underserved segments of the credit market in San Francisco. Linked to the goals of the proposed Credit Union of San Francisco, would be more far-reaching goals of incentivizing community reinvestment at a local level, for example, supporting local contributions to pension funds being reinvested locally, and supporting expanding CRA provisions in the city, per the recommendations of CRC for Federal reauthorization of CRA.

The CUSF would be incorporated as an independent, member-owned, federally chartered and fully insured credit union. The Board of Directors would consist of seats filled through election by the CUSF members, and all elected board members would have to maintain San Francisco as their primary place of residence. To insure adequate representation of constituencies normally excluded from oversight and voice over the credit supply process, certain social criteria would govern board composition. Particular emphasis in terms of nomination and election will be give to candidates earning at or below the City median income. Efforts will be made to insure ethnic and racial diversity, and to maintain equal distribution in terms of gender. No agency or organization receiving funds from the CUSF may serve on the board.

2. Expand alternatives to check cashing, pay-day loans, and other predatory lending practices.

The city has already begun some alternative programs to support low-income residents dependent on onerous check-cashing usinesses. With the assets of the new municipal credit union, these programs could be expanded to confront a range of predatory lending issues in San Francisco.

3. Invest in socially responsible enterprises, including those with a maximum local multiplier, labor standards, and community-ownership models, through the municipal credit union.

The CUSF would engage in rigorous feasibility assessment of loan applicants. However, because the CUSF is not run as a profit-maximizing enterprise, management and loan officers would explicitly consider projects in light of both economic viability and their potential contribution to the economic, social, and cultural well-being of San Francisco. A major problem for small businesses and nonprofits is simply access to credit, given the financial meltdown and tightening by banks. A municipal credit union can begin to take over some of the functions that the public sector currently hands over to private banking. Use this bank to leverage resources and prioritize investments in businesses such as backstreets industries and creative work that create a stable economy. Particular priority would be given to projects that meet the need for affordable housing, economic development, and local jobs. Funded projects would be selected on the basis of: a.) Having a maximum local multiplier; b.) Meeting minimum wage and benefit standards; and that adopt neutrality agreements as regards unionization; c.) Promoting businesses that are locally owned and commit to hiring locally, and d.) Promoting alternative ownership and development models, such as worker coops, employee associations, and community-controlled corporations, and Limited Liability Corporations that allow immigrants in San Francisco to be legally employed. enterprises.

4. Explore the development of City-run enterprises that provide a sustainable income stream to support other economic development goals.

A principal limitation of all economic development initiatives are their dependence on tax revenue that ebbs and flows with the boom/bust economic cycles. While the municipal credit union idea brings a major potential for reinvestment in socially beneficial enterprises, it does not directly address this dependence on unreliable revenue streams. To this end, the city should explore and, if feasible, prioritize the development of city-run enterprises. Municipal energy is the obvious place to start, but other ideas could be explored.

The Municipal Development Corporation (MDC) will produce goods and services for sale on the market. These enterprises will operate at sufficient scale to be able to generate sizable economic surpluses (profits) that can be redirected into subsiding low-return, but socially vital, forms of economic and cultural development. We envision aiming for annual surpluses in the range of $50-100 million dollars. These enterprise funds would NOT be included into the City’s General Fund. Instead, these enterprises would be established under a separate charter as enterprise funds whose purpose would be to generate surpluses over and above operating costs to be used to subsidize local community-based development projects that are socially beneficial but often not commercially viable. Strict conditions would be placed on the allocation of these surplus to insure they do not become a back door conduit for subsidizing market-rate, privately administered “corporate” development. Nor could these funds replace or displace existing funding for community-based nonprofits currently financed out of General Fund appropriations. Two ideas considered so far are:

  • Investment of substantial funds over the next five years in the generation of alternative forms of energy to compete with, and eventually displace, PGE as the dominant supplier of energy to the local consumer market.
  • Potential for cultivation of medical marijuana for sale to registered medical dispensaries throughout the state of California.

To encourage the development of additional proposals, the City shall establish a City Commission on Local Public Enterprise Development (CCLPED) that will convene discussions amongst representatives drawn from alternative business networks, organized labor, community-based organizations, City government, and otherwise unaffiliated citizens about ways San Francisco can foster publicly-owned and controlled municipal commercial development with the explicit purpose of generating revenue from the sale of goods and services to private firms, households, and public entities. Together with funds allocated through the municipal bank, we envision these MDCs will compose the core of an alternative, publicly-controlled, and democratically accountable alternative form of economic development in San Francisco.

[i] Numbers are provisional estimates at this point


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