The Santa Barbara County Board of Supervisors passed a resolution this month expressing interest in participating in a viability study that would determine the feasibility of establishing a public bank with the five Central Coast counties.
“At least studying this as a possibility is a responsible decision in light of the hedging of risk and diversification as a way to minimize risk and at least have the possibility or returns,” First District Supervisor Das Williams said at the May 4 meeting. “I think it would be a responsible decision to analyze that, to analyze the possible benefit for the taxpayer and for the county. And if there is no benefit, then you don’t move forward.”
California Assembly Bill 857 created a process for local agencies to create a public bank, which is defined as a corporation organized for the purpose of engaging in the commercial or industrial banking business that is owned wholly by a local agency, local agencies or a joint powers authority, according to a letter filed to the board.
Before forming the bank, the bill requires the local agency to conduct a study to assess its viability.
Santa Cruz County Supervisor Zach Friend sent a letter requesting statements of interest in participating in the study to the five Central Coast counties: Santa Cruz, Monterey, San Benito, San Luis Obispo and Santa Barbara.
The study must include a discussion of the purposes of the bank, including achieving cost savings, strengthening local economies, supporting community development, and addressing infrastructure and housing needs for localities.
A fiscal analysis of costs associated with starting the bank and financial projections for the first five years of the proposed bank also must be included in the study. The financial projections should include an estimate of the time period for when expected revenues meet or exceed the expected costs and an estimate of the total operating subsidy that the agency may be required to provide until the proposed bank generates sufficient revenue to cover its costs, according to the board letter.
The study also must include an analysis of how the proposed governance structure of the public bank separates from unlawful insider transactions and apparent conflicts of interest.
The majority of board members were interested in participating in the study and thought the proposed bank offers an opportunity to reinvest money locally, reduce taxes or provide a major new source of income.
“This offers an opportunity to reinvest money that we are already collecting in taxpayer revenue and invest it locally,” Third District Supervisor Joan Hartmann said. “My real interest in this is that it could reduce the cost of public infrastructure projects by 35 to 50%.”
Williams said that a huge position of advantage would be if cannabis was part of the study’s analysis because the bank’s lending opportunities are fewer.
“I would imagine that there is at least a possibility of a competitive advantage on a public bank that is really looking to financing, borrowing or investing via that industry simply because we would not be shackled by the same federal prohibitions that most lending institutions have,” he said.
During the April budget hearings, the board asked that the County Executive Office’s recommended budget for fiscal year 2021-22 include up to $25,000 to fund the county’s participation in such a study, so the funding is already set aside for participation.
“I think it’s well worth investigating. We have already allocated in budget workshops our share of the funding for a feasibility study,” Hartmann said.
Some members of the public called in to voice their support, saying that the proposed public bank would allow the community to enjoy the benefits of its profits instead of Wall Street investors.
While the majority of the board members thought that at least participating in the study was worthwhile, Fifth District Supervisor Steve Lavagnino said that establishing a Central Coast public bank was a sign of government overreach.
“Why would we stop at banking? The idea that this industry is making profits, and we could spend those profits better than that private industry, we could do better with it than giving bonuses, we could redirect that wealth,” Lavagnino said. “That’s a slippery slope. I think this is a sign of government overreach, and I’m just not interested in going down this road.”
Board chair Bob Nelson said he is not interested in competing with or replacing Wall Street, and he is “definitely not interested in competing with our local banks that employ our residents.”
However, Nelson added that he is willing to learn more about the possibility, and when the study comes back he will look to county counsel to ensure that the public bank would not compete with other local banks.
Ultimately, the Board of Supervisors passed its resolution of interest on May 4 by a 4-1 vote, with Lavagnino opposed.
However, the study will not even take place unless it gets enough support from the other counties and cities in the Central Coast region.
“The ability to be successful will really depend on how many other counties are interested in joining this,” Second District Supervisor Gregg Hart said. “If we and Santa Cruz end up being the only counties interested, it’s going to be very hard to generate enough money to make this successful in a reasonable time frame.”
So far, Santa Cruz, Santa Barbara, and Monterey counties have passed a resolution of support as well as the cities of Santa Cruz, Scotts Valley, Watsonville, Seaside, Capitola, and Del Rey Oaks, according to Santa Cruz County Supervisor Zach Friend. Other counties and cities have upcoming votes, he added.
“It’s clear with the significant interest that has already been expressed that exploring a feasibility study is likely,” Friend told Noozhawk. “It’s prudent to look into all options for improving investments in our communities, and a public bank can be part of the puzzle.”
— Noozhawk staff writer Jade Martinez-Pogue can be reached at jmartinez-pogue@noozhawk.com. Follow Noozhawk on Twitter: @noozhawk, @NoozhawkNews and @NoozhawkBiz. Connect with Noozhawk on Facebook.