Rebuttal to the LA Watchdog

 

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Jack from a video urging a No vote on the 2009 Measure B, a solar energy and jobs program run through DWP.  Jack is a frequent critic of the DWP’s board of commissioners.

The folks against a measure that would allow Los Angeles to explore a public bank that would cut out the Wall Street middleman are making some unfounded but nonetheless scary-sounding claims.

Jack Humphreville, a dogged local advocate and reporter who covers the DWP and city finances beat for the website CityWatch put out a brazen polemic against Charter Amendment B which contained some falsehoods and misrepresentations.  I thought I’d retort some of the worst, for the record, and to engage in this important dialogue about the future Municipal Bank of Los Angeles.

Below are some selections from the article which you can find here.

“Over the next two months, we will be experiencing a full court press by the well-financed proponents of Charter Amendment B, […]”

I laughed out loud when I read this.

Who are these proponents?  I’m a volunteer Legislative Director for Public Bank LA, which is probably the foremost group advocating for the measure, and we are 100% volunteer and have raised literally zero money to date.  We’re just private citizens and we have no patrons. We do sometimes work with the Public Banking Institute, an exceedingly small national non-profit with no corporate backing whose sole purpose is to educate people about public banking.  They have no part in advocating for Charter Amendment B.

This is a wildly backward claim for which Humphreville has no evidence.

“But these pie-in-the-sky claims have not been documented, substantiated, or made available to the public because the City does not have a business plan for the proposed City owned Bank of Los Angeles.”

The City Attorney, the Chief Legislative Analyst and independent groups have all released and continue to work on legal, business and economic analysis of a Bank of Los Angeles, all of which will lead to a comprehensive business plan and economic model.  Such a plan must be developed in tandem with elected officials and the community at large.  It would be ridiculous to propose such an important institution wholesale without input from the community over many steps, including legislative action and ballot initiatives like Charter Amendment B.

“[…] a bank that will eventually require a cash investment of $1 billion from the City to capitalize the bank, to establish the required loan loss reserves, […] Again, there is no plan to raise the $1 billion in capital […]” (emphasis mine)

There is no widespread consensus on the best size or scope for a bank.  That’s why we’re having a public debate.  Humphreville’s suggestion of a bank with capital reserves of $1B (with a loan portfolio of about $6-$8B) would be a good start!

There are multiple plans to fund the bank, again contrary to Humphreville’s claims.  We’ll see reports in the next couple of weeks describing how the Treasurer will be able to invest the short and medium term investments of the city in capital for the bank, allowing the city to have the proper loan reserves and liquidity through proper relationships to the Federal Reserve or other public banks in California. This is only one option for capitalizing the bank.  Humphreville has either chosen not to look into them or he doesn’t understand the mechanisms under discussion.

“The proponents claim that the City paid $170 million in banking fees last year, implying that the Bank of Los Angeles will eventually save the City tens of millions.  But this will require the Bank to develop and manage sophisticated data processing systems, a highly unlikely prospect given the City’s poor record of developing and operating management information systems.

Again, the city could outsource much of those systems and still generate millions from leveraging city deposits into a conservative, productive loan portfolio. As it developed more and more sophisticated internal services for city government, it could expand its scope and save even more.

“The proponents claim that the “big banks receive billions in City deposits virtually interest free.” But according to reports from the Office of Finance, banks deposits are only about 1% of the City’s $9 billion investment portfolio.”

Suddenly Humphreville is very trusting of city reporting, considering his usual position that the city hides billions in expenses and liabilities in plain sight. Nonetheless, he expects us to believe the city operates with a cash balance of $90M across all departments and related agencies because of how the CAFR reports assets.  Even if this is true in a practical sense (which I doubt) the city’s short term investments are much better off invested in a bank than sitting in T-bills or money markets.  This is why people found banks in the first place.

“The proponents claim that the City paid $1.1 billion in interest to “big banks” and investors.  But there is no evidence to support this claim, especially given that the City is budgeting only $28 million in interest expense on its outstanding General Obligation Bonds.  Of course, the City’s three proprietary departments (DWP, the Port of Los Angeles, and LAX), the Sewer Department, and other special revenue departments have outstanding bonds which require interest payments. But $1.1 billion in interest expense appears to be a vast overstatement.”

I have an email from the Director of Financial Analysis and Reporting citing the CAFR that the interest paid in 2017 was $1.12B.  See below.

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Email from city official confirming our figures and sourcing for debt service and interest.

“We would be crazy to give a blank check for a City owned bank that would be controlled by the Mayor, the City Council, and their cronies.”

Any public bank would be administered by an independent Board of Directors comprised of Los Angeles residents from every city council district, with expertise in not just banking but also housing development, environmental mitigation and the public good.  This is compared to the leadership of Wall Street banks, which are the universal epitome of the cronyism and corruption Humphreville decries. He complains about unfunded structural liabilities while denying the city all methods for meeting those obligations.

Do your reading or talk to the people who do.

“Vote NO on Charter Amendment B.”

Actually you should Vote #YesOnB.

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