The City Council voted 15-1 to approve legislation that will initiate the creation of the Philadelphia Public Finance Authority on Thursday.
The entity is intended to provide loans and improve access to credit and other financial services to disadvantaged communities. It is also considered an initial step for the city to create its own municipal bankwhich would be the first in the nation.
Although PPFA will not initially provide checking or savings accounts, it may in the future, and some of the bill’s supporters hope it will.
The authority “will have the ability to issue letters of credit and guarantees for businesses, especially black and brown businesses … that traditionally haven’t had this type of financial product,” said Councilmember Derek Green, who introduced the bill. .
Are financial tools they are essentially a promise by the authority to traditional lenders that it will repay whatever an entrepreneur borrows.
Green, who used to be a banker, said he started working on the bill when he first took office six years ago. HWe know of many residents who could have benefited from the program, including a friend who runs a small technology business.
The owner of the company signed a contract with the city in October 2021 and has been providing the agreed services, but has not been paid due to problems at the end of the city. The owner then needed to borrow money to pay the payroll.
“They went to their traditional lender that they had a 17-year relationship with, and that lender would not increase their line of credit that they would need for cash flow,” Green said. “In reality, they were thinking of going to a non-traditional lender and paying a much higher interest rate just to generate cash flow for their employees.”
The authority’s focus on business owners of color stems from the country’s long history of credit discrimination and credit discrimination. Green says these factors have left African Americans and Latinos own only 10% of companies with employees in Philadelphia, despite the fact that they represent 44% and 15% of the city’s population, respectively.
Green said that the PPFA was formed under the Pennsylvania mandate. Economic Development Financing Lawwhich allows municipalities to form an agency that can borrow money to provide loans and letters of credit to residents.
Pennsylvania municipalities are prohibited from forming their own municipal banks, so this is a way around that rule, Green saying Billy Penn.
But some of the bill’s supporters would like to see Philadelphia enter the realm of personal banking, given that 10% of homes in the city they do not have a checking account or a savings account and 22% are not banked. This leaves them with limited access to credit and financial services like payday loans or check cashing services that are not offered by the banks where they have accounts.
PPFA will be headed by a nine-person board of directors appointed by the mayor, the Philadelphia Business Journal reports. Each time a vacancy arises, the City Council will have the opportunity to recommend candidates. Those directors will appoint a nine-person policy board that will guide the day-to-day operations of the authority.
At least five board members would need five years of experience working on issues including neighborhood-based small business development, public transportation, and environmental and racial justice.
In addition, a board member must be an officer of the Pennsylvania Network of Community Development Financial Institutions: a coalition of financial institutions focused on community development. Another must be a member of the board of a minority-owned bank and one must have worked for two years defending the economic interests of consumers and the community.
But not everyone thinks starting a public bank is a good idea. The city government is far from free of its own financial problems.
“Do you really have confidence that a city that hasn’t reconciled its bank statements for seven years can take taxpayer money and play banker with it?” Larry Platt, co-founder of the Philadelphia Citizen, wrote in a opinion piece on the site last month.
In the article, he notes that the city would need large public subsidies to get the project off the ground, noting that a study exploring the creation of a public bank in San Francisco found that the project would take 56 years to break even.
Platt also points out that there are other ways to increase access to credit in underserved communities of color, some of which are already taking place in Philadelphia.
In recent years, several organizations have been created focused on improving the flow of capital in communities like the ones Green is focusing on.
That includes the Philadelphia Growth, Resilience, Independence and Toughness Fund, a $100 million fund collaboration among 30 financial institutions to provide credit to Black and Latino communities through the Pennsylvania CDFI.
Platt added that there is currently a movement to create more black-owned banks in the country. Currently, only 21 of the country’s more than 4,000 banks are owned by African Americans, but many believe they would do a better job of providing credit to communities of color.