A new bill in the Assembly would create a publicly owned state bank that would give loans to city governments and small businesses, has gained traction during the extended legislative recess and has become poised to be one of the “hot button” bills this session.
Assembly Bill 310, authored by Assemblyman Miguel Santiago (D-Los Angeles), would establish the California Infrastructure and Economic Development Bank, or I-Bank for short. The bank would be run out of Governor Gavin Newsom’s Office of Business and Economic Development. An executive director chosen by the Governor would lead the I-Bank, along with a board of directors that would be picked by the Infrastructure and Economic Development Bank Commission. The Commission itself would be comprised of the Governor, state Treasurer, and the state Controller.
Under the bill, the I-Bank would be allowed to accept deposits and join both the Federal Reserve System and the Federal Home Loan Bank System. The bank would act like a credit union for local governments and small businesses, with around $9.9 billion being funded into the I-Bank from California’s Pooled Money Investment Account to allow for loans and credit.
Supporters push for bill to allow for more direct, local relief
AB 310, also known as the Bergeson-Peace Infrastructure and Economic Development Bank Act, had begun life last year as a jury selection bill where it fizzled out after being passed by the Assembly. After AB 857 was passed last year allowing for the establishment of public banks in California, a state bank became a possibility. While only cities such as Los Angeles started state banks beginning in October of 2019, the COVID-19 pandemic and ensuing economic crisis financially hurt local governments and small businesses.
Assemblyman Santiago, as well as other supporters, used the crisis as a way to create the I-Bank to assist them with state funds that would have otherwise been difficult to divest from the state’s general fund to struggling local governments and small businesses.
“Let’s take 10% of the money that California already holds in its checking account, and let’s help Main Street,” said Assemblyman Santiago in a press conference. “We can structure a bank that actually is accountable to the people and does what the people want it to do.”
His office continued in a follow-up announcement that the bank would help those hurt in the current crisis “by lending to small businesses at reasonable rates and provide local governments with a stable source of financing.”
The lack of federal assistance coming in was also noted by supporters.
“You can’t count on the federal government to come and rescue us so the state must do its part to save our cities and save our small businesses,” noted Assemblyman Ash Kalra (D-San Jose).
However, the bill has brought in substantial opposition from state lawmakers as well.
Opponents to AB 310 note state run issues, Governor having large amounts of control over I-Bank
Those who oppose AB 310 note that a state run bank bypasses critical stages in the legislative process when funding is decided on in budgets and through bills.
“Aside from the fact that a state-run bank is something out of 1984, this is a very dangerous precedent,” noted financial expert David Wilson in an interview with the Globe. “Just look at it. The Governor essentially picks everyone involved who decides what loans and lines of credit can be given and to whom.”
“On top of that, these financial decisions aren’t going through the Senate or Assembly or through proper channels to make sure it’s all on the up and up. Instead, they’re going through a bank. A bank run by the state that can approve whoever much more quickly and with much less digging.”
“This bill is only up because small businesses are hurting and a lot of places are facing budget crunches due to less tax money coming in and higher health budgets. And yes, schools and other places hurt by this do need money. But both the federal government and the state have been working on loans themselves, or have fixed budgets that have school systems taking out short-term loans in between funding gaps. We’ve been finding solutions by and large.”
“But a state run bank, that’s going far. They’re using the crisis as a means to get something they’ve wanted to have for awhile. If it’s passed, yes, it might help some people out, but in the long term, when the economy gets better, it would just be an extension of state funding. And it would be state funding decided on not by two houses and an executive branch, but by solely the state executive branch and their personal picks on who oversees it. Read the bill. They have a hand in picking everyone involved with little oversight.”
“This is what would happen if Congress legalized and funded everything the Harding administration did in the 20’s. It’s giving way too much behind the curtain of the crisis going on.”
AB 310 is expected to go before the Senate Governance and Finance Committee when the session resumes later this month.