DATE: August 21, 2024
TO: Council Budget and Finance Committee
FROM: Director of Finance
SUBJECT: Public Bank East Bay Update
RECOMMENDATION
That the Committee receives and provides feedback on the City’s continued participation in the Public Bank East Bay, including the consideration of future financial commitment to becoming a founding member of the bank.
SUMMARY
For a number of years, the City of Hayward has engaged with the Public Bank East Bay (PBEB) as it continued toward establishing a public bank in California. The passage of AB 857, the California Public Banking Act, provided a pathway for local government entities to charter public banks. Since that time, the Public Bank East Bay has engaged with several local agencies to gain support for the creation of a public bank in California. This report provides an update on the PBEB and projected next steps for the continued establishment of the public bank, including applying to the State of California’s Department of Financial Protection and Innovation (State) and Federal Deposit Insurance Corporation (FDIC).
BACKGROUND
In September 2019, California state legislature passed AB 857, the Public Banking Act.
Public banking refers to financial institutions that are owned by public entities, such as cities and counties, and operate in the public interest. These institutions are owned by the people through their representative governments and are designed to serve the needs of the community.
In November 2021, PBEB provided the Council Budget and Finance Committee (Committee) with a presentation on its institution, an overview of how public banking works, and an overview of its model and next steps.
In April 2022, PBEB returned to the Council Budget and Finance Committee (Committee) to present its viability study. During this meeting, PBEB requested the Committee's support to move forward with a draft resolution in favor of the PBEB and to provide a letter of support to the Alameda County Board of Supervisors.
In November 2022, Council adopted the draft resolution in support for the PBEB, and a letter of support to Alameda County Board of Supervisors.
DISCUSSION
The PBEB aims to establish an institution where municipal funds are invested to benefit local communities through lending opportunities. The PBEB business plan outlines its goal to provide loans and financial products by leveraging public funds to serve specific communities. These loans and products will primarily focus on affordable housing development, affordable homeownership, support for local enterprises (including small business loans), and green investments related to environmental justice. While the initial focus will be on these areas, PBEB may eventually expand into other markets to further support local communities.
To create the bank institution, the PBEB must apply to the State and FDIC. Both applications include a number of requirements, including the completion of a viability study, and business plan. The PBEB have created both the viability study, and most recently drafted a business plan.
The draft business plan outlines the financial strategies to establish the necessary initial capitalization and ongoing funding to ensure long-term operation of the bank. This includes substantial capital contributions from public agencies totaling $40 million; and sizable first year deposits from those vested agencies totaling $9 million. It is projected that the bank will be profitable and sustainable by the third year. The draft business plan also indicates that a portion of the deposits are expected to come from the Community Reinvestment Act (CRA) and other private sources. The draft business plan also includes financial management planning, a plan for monitoring through a governing board, and financial projections, such as Pro Forma.
The Cities of Berkeley, Oakland, Richmond, and County of Alameda expressed intent to form the PBEB. In partnership, these agencies formed a working group to review the PBEB’s draft business plan. While the City of Hayward has not expressed an intent to be a founding member of the bank, staff participated in the working group to gain insight and learn more about the business model and objectives of the public bank.
The working group met regularly to review and discuss the draft business plan and provided comments and questions on the information outlined in the draft business plan. In early 2024, the City of Berkeley engaged with a consultant, HR&A, to review and provide professional feedback regarding the viability of the draft business plan. The consultant has completed a draft pre-decisional report. Staff received a copy of this repot on August 14, 2024. Staff will provide a high-level summary of the opinion, and recommendations outlined in the draft pre-decisional report. The PBEB will continue to engage with the City of Berkeley’s Budget Committee to continue a path toward approval of the draft business plan and resolve that the City of Berkeley invest and join the bank. In April 2023, the City of Berkeley approved the PBEB viability study, and declared intent to form the bank. To date, the City of Berkeley continues to engage with PBEB as stated in this report.
In May 2024, the City of Richmond approved the draft business plan, and adopted a resolution joining the public bank, if the charter is approved by the State and Alameda County has delivered the necessary commitments. If those requirements are met, the City of Richmond will contribute its portion of the initial capitalization of the bank and become a founding member of the bank.
In December 2022, the City of Oakland adopted the PBEB viability study, and resolved the intent to form the PBEB with the City of Oakland as founding members. The City of Oakland had planned to place the approval of the bank's draft business plan and a resolution to join and commit to capitalizing the bank on its July agenda. However, due to more urgent matters, this item has been postponed to September. Despite the delay, the City of Oakland remains supportive and committed to investing in the bank.
The Treasurer of Alameda County (County) has expressed the intent to invest in PBEB once the bank is licensed. PBEB is actively working with the County to secure approval of the draft business plan and a commitment from the County to invest and join the bank.
PBEB is actively seeking support and a $1 million capital investment from the City of Hayward. The amount for annual deposits is yet to be determined. By joining and committing to this investment, the City of Hayward would become a founding member and secure a seat on the Board of Directors.
Potential Future Efforts
Public Bank East Bay - The PBEB continues to attempt to collaborate with agencies that have expressed support for forming the bank, including Alameda County and the cities of Richmond, Oakland, and Berkeley. While the City of Richmond has resolved to approve the submission of the draft business plan to the State and has authorized the signing of the charter application, its commitment is contingent on State approval and Alameda County meeting necessary commitments. If these requirements are met, the City of Richmond plans to contribute its portion to capitalize the bank and become a founding member.
PBEB is continuing to engage with the County of Alameda, City of Oakland, and City of Berkeley as detailed in this report. Before PBEB can apply to charter the bank with the State, and complete the regulatory review by the FDIC, the bank must first identify and secure capital funding for the operation of the public bank. At this time, the capital investment has not been secured. PBEB continues to work with interested public agencies, including exploring other sources to establish the necessary capitalization to form the bank.
In the future, should the PBEB receive approval from both governing entities, there would be significant regulations set forth. For the first three years of the operation of the bank, the FDIC and the state regulators regularly monitor the operation of the bank, including quarterly reports and examination to ensure compliance.
City of Hayward - Staff is requesting guidance from the Committee on whether the City of Hayward should continue its involvement with PBEB and consider becoming a founding member. This would involve a financial commitment to contribute toward the bank's capitalization.
ECOMONIC IMPACT
This is an informational item and has no direct economic impact.
FISCAL IMPACT
This is an informational item and has no direct fiscal impact at this point in time.
NEXT STEPS
Staff will proceed with next steps based on the direction and recommendation of the Committee.
Prepared by: Nicole Gonzales, Director of Finance
Reviewed by: Regina Youngblood, Assistant City Manager Approved by:
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Dustin Claussen, Interim City Manager
City of Hayward - Council Meeting November 1, 2022 - Item 6 Community Reinvestment Act (CRA)
City of Berkeley - Council Meeting April 11, 2023 - Item 34 City of Richmond - Council Meeting May 28, 2024 - Item P.1.a City of Oakland - Council Meeting December 20, 2022 - Item 22-0931 City of Oakland - Council Meeting December 20, 2022 - Item 22-0986