What the Gov: What Should I Know About the Proposed Public Bank of Chicago?

A proposal for a public bank has voters scratching their heads. Chicago is one of dozens of cities and states that are exploring or discussing similar proposals.

This article is part of a series called What the Gov, where BGA Engagement Editor Mia Sato takes reader questions and tracks down the answers. Got a question about the candidates and the issues? Ask away.

The run-up to Chicago’s city elections is in full swing — Is anyone else getting campaign mailers weekly at this point? Maybe you’ve even received a knock at the door from candidates asking for your support.

There are many moving parts to the upcoming municipal elections — 14 mayoral candidates! Chicago’s most powerful alderman being charged with corruption! Another wearing a wire to help in said investigation! — that Chicago voters might be missing one of the more novel proposals flying in the race for city treasurer (Not sure what this office does? I got you.)

In his bid for treasurer, retiring Ald. Ameya Pawar (47th) is calling for Chicago to create a public bank — one unlike anything that exists in the country. Mayoral candidate Amara Enyia also includes a public bank as part of her platform.

It’s likely an intriguing idea for many voters, because in the past few weeks, I’ve gotten half a dozen questions about the concept of a public bank, Pawar’s proposal and its feasibility.

What’s A Public Bank?

A public bank is a financial institution owned and operated by a city, state or region. It might be strange to imagine, but when cities and states put investments into a bank, it typically goes to commercial enterprises — Chase, Bank of America, etc. In the current system, states and municipalities are subject to fees just to have funds held.

Public banks exist around the world, from China and Japan to Germany, Australia, Brazil and more, but are something of a unicorn in the United States. Currently, the only public banks here are the Bank of North Dakota and one in American Samoa.

Proponents of public banks say they could allow states and cities to take control of their money. A public bank would allow state and local governments to bank its own money and bring in its own revenue — through interest and other operations — that they would then have the authority to reinvest in itself and programs locally.

The argument also goes that public banks empower local communities to invest in and finance causes people care about — infrastructure, housing, schools — that private banks might reject. And in the public bank model, any revenue would go back into the community instead of paying returns to shareholders.

“The public bank allows you to basically leverage your own capital, invest in your own community or your own economy, and then pay yourself for it through the interest,” Walt McRee, senior advisor and chair emeritus at the nonpartisan Public Banking Institute, said.

Pawar’s Proposal

Pawar said he is proposing a public bank to address two key issues Chicagoans “from the upper-middle class to the working poor” face: student loan debt with high interest rates and housing instability in Chicago.

In Chicago, Pawar envisions the public bank could offer lower interest rates on student loans, tied to residency — Chicagoans would be paying less in interest, thus giving them more money to spend in the city. He also named increased investment in affordable housing projects and the financing of infrastructure as key roles for the bank to serve.

Pawar said the treasurer's investment portfolio and city pension funds would fund the bank.

Pawar also said he supports designating a public bank as the first local partner in the proposed “Green New Deal,” a national economic stimulus plan to address economic inequity and shift the US to renewable energy.

You might be thinking: Why should I trust politicians to bank our funds?

Pawar said a public bank would have an advisory board or another similar structure that included community members or organizations as a way to regulate and weigh in on the bank’s operations.

“We'd be making decisions together around the kind of investments we make in Chicago, whether that is protecting access to fresh water, whether that is divesting from companies that pollute the environment or taking activists positions in the market to combat the opiate crisis,” Pawar said.

“I understand we are seeing a lot of things play out in Chicago today,” Pawar said. “But on the other hand, I also see that white collar criminals get away with almost every single thing, and I don’t see anything that’s happened [post-2008] to the banks.”

...But Can He Do That?

Some voters wonder whether the creation of a public bank is in the purview of the treasurer.

In Chicago, creating a public bank can’t be done with the snap of a finger. Statewide legislation is needed to give municipalities permission to create public banks. If he were elected in February, Pawar said he would immediately begin a campaign to get a ballot measure in front of voters in 2020 asking them to weigh in.

“It’s a longer term process, but it’s something that we need to start today,” Pawar said. “Otherwise, it’ll never happen.”

So yes, the treasurer could launch a campaign to establish a public bank, but they’d have to be in it for the long haul.

Most recently, Los Angeles voters rejected a similar referendum measure in November that would have brought the city one step closer to creating a “purely commercial” city-owned bank.

Not Easy Being Green

In recent years the movement for public banks found an unexpected ally: the cannabis industry.

Here’s the situation: Even as more and more states legalize medical and recreational weed, the industry is “cash only” — businesses dealing in marijuana have a hard time banking with private financial institutions that are federally chartered, because weed is still a Schedule I drug. Banks that were found serving cannabis companies could be at risk of losing their charter and being shut down.

The result? Cannabis companies handle millions of dollars in cash making them targets of crime, and often can’t even open bank accounts.

Illinois is one step closer to legal recreational marijuana with new Gov. JB Pritzker in office. Pawar believes a state-chartered public bank in Chicago would be able to comply by the state’s laws, thus having the freedom to bank cannabis industries.

McRee said that though public banks may seem, on the surface, to be a convenient solution to the sticky weed situation, even state-chartered banks will run into legal problems dealing with cannabis businesses, at least until the feds move on the issue.

“I think the boogeyman about marijuana is going to go away before you’re going to get the treasurer to take a chance on putting his money into a bank where the feds could come along and say, ‘Oops! That’s crime money,’” McRee said.

Late last year in California, the results of a highly anticipated study extinguished hopes for a public bank specifically for the cannabis industry. The study found that initial funding, the realistic timeline and legal hurdles all “ended up reaching a dead end” for the proposal. And they came to that conclusion with the support of a public bank-friendly state treasurer.

A Cause to Bank On?

According to McRee, dozens of states and cities are actively looking into the option of a public bank or working to push legislation that would enable the creation of banks. Here in Illinois, a bill was introduced in 2017 that would have created the Community Bank of Illinois.

But both McRee and Pawar said voters are increasingly becoming aware of the possibilities of a public bank and the fact that it’s even an option at all.

“What we're seeing is that… this new player on the horizon, this new tool is starting to be understood and investigated in very serious ways,” McRee said.

That all sounds great, but as you can imagine, the debate over public banks is a contentious one. Private banking institutions aren’t fans of the idea, and some public policy experts have questioned whether a public bank would bring about the widespread, transformative changes advocates hope for. Dean Baker, a senior economist at the left-leaning Center for Economic and Policy Research, recently told The New Republic:

“Some of its proponents really think this is the key to prosperity,” he said. “And I just can’t see that. I think it could bring fees down. I think, again, it could help to expose abuses in different areas because clearly the banks do a lot of gouging. I think that those are very, very good things. But I really can’t see a story where a public bank qualitatively changes the state of the economy in a city or state that institutes it.”

Pawar acknowledged his proposal is a bold one. But, he said, the treasurer should be looking at solutions for some of the city’s (and Chicagoans’) problems.

“I think these are dangerous times. We have a president and other financial institutions who like to keep people at the bottom fighting over scraps,” Pawar said. “And I think you don't fight back against that by thinking small.”