San Francisco voters will decide in November whether the city should establish a municipal public bank, a move that would make it the first city in the United States with a government-owned financial institution. The proposal cleared a hurdle this week when city supervisors approved its placement on the ballot.
North Dakota is the only other state with a major public bank. Supporters argue that a San Francisco public bank could unlock financing for housing projects, climate goals, and local small businesses. "We can build a public bank that prioritizes reinvesting back into what we all need to sustain our local communities," said Supervisor Chyanne Chen. "Let us use every tool at our disposal to keep the city affordable and to drive an economic recovery that leaves no one behind."
However, the proposal faces significant questions, including how to secure the estimated $325 million in startup costs amid the city's $643 million budget deficit. Supervisor Alan Wong expressed reservations, stating, "In a moment like this, asking voters to commit San Francisco to potentially running a financial institution is asking for trust the city has not yet earned."
Supervisor Jackie Fielder, a proponent of the public bank, has indicated that future legislation would address revenue streams. The measure aims to act ahead of a 2028 state law expiration that allows cities to create public banks. The bank would be managed by qualified bankers appointed by an oversight committee selected by local officials. Its charter would prohibit lending to fossil fuel corporations or weapons manufacturers.
Fielder previously attempted a ballot measure to fund the bank through a tax on lending companies, but that effort was paused. The current political climate in San Francisco might make new tax hikes challenging, as voters rejected a proposed tax increase on high-earning CEOs earlier this year.
Supporters point to North Dakota's public bank as a model. The Bank of North Dakota primarily relies on state tax collections, fees, and corporate accounts for deposits, with a small portion from residents. It has generally been profitable, returning funds to the state for general revenue or economic development. However, its success has been linked to the state's oil industry boom, according to University of Illinois Chicago professor Robert S. Chirinko.
Unlike commercial banks, deposits in North Dakota's public bank are not federally insured, meaning the state assumes all risk. California law mandates federal insurance for San Francisco's proposed bank, which could introduce additional regulatory challenges, as no public bank has previously sought such approval.
Chirinko cautioned that replicating North Dakota's success would depend heavily on funding and that San Francisco's focus on investments like climate technology or housing might not yield immediate returns. "There could be a role there for government, but you have to recognize that you’re not going to get your money back," he said.
Public banks can also face accusations of political favoritism. Critics, such as Y Combinator CEO Garry Tan, have raised concerns about potential cronyism and mismanagement. In the past, North Dakota's bank faced backlash for financing law enforcement's response to protests against the Dakota Access Pipeline, raising similar fears of political influence in San Francisco's proposal.