money moves the world and banking moves money welcome to the public bank solution conversations about an emerging new american institution a publicly owned partnership banks able to rebalance the scales of monetary control in service of the public interest and our common wealth brought to you by the public banking institute and its national association of partners and  welcome to the public bank solution i want to create here for the public bank it's you tube and for bank you know new jersey a series of discussions around banking on new jersey the organization is also underwriting this program  to talk about what the prospect of a state bank for new jersey can mean and to get into some of the details about what it's going to do our guest today is wayne lauder the executive director of the rainier valley community development fund  seattle wayne has been working with a public banking prospect in the state of washington for a number of years and they too are looking at creating a state bank as well as perhaps a couple of city banks in seattle and tacoma as is the case for probably a couple of dozen other towns around america we're in a new era here where the public banking is emerging around the country as a as a breakthrough for municipal and government finance which is pretty much been stuck with having to live and live within reducing means means that are diminishing because of smaller tax rates and also because of more expensive costs for growth and so forth but the bank having a bank makes a difference in so far as you're able to use your money differently to capitalize a bank to leverage that capital into fines that can be used for a variety of mission based purposes so we we talked with that wayne last time about how bank works and no we want to talk about something that he's in because he's been a banker for many decades and in the last several years has become an executive director of a community development financial institution which is very important in terms of the public mission the vision really of what we hope a public bank can do for new jersey there are lots of needs that are not getting met and we all know that from infrastructure to you know as crushing student debt that to affordable housing through a whole host of stakeholder interests like to call them that need to be addressed and with the bank we believe we'll have a whole new resources to do that but c v f a's community development financial institutions are organization community so it's focused on the community comedian element financial so we are into the finance side of things as opposed to just pure work in the community and we are an institution the majority of c are nonprofit five a one c three s although credit unions can also be categorized as some credit unions have chosen to be certified as a c d f i know the term really is a  developed by the u s treasury and i forgot to look up you know what year this program came into being but the u s treasury and we're talking federal government that created the c d f i fund to organizations such as ours to to incorporate and to do community lending work and these c d f ice can have a wide range of mission objectives ours happens to deal with underprivileged under served communities of well defined geographic community neighborhood in the city of seattle however there are those that would serve a much wider area but they're targeting under served businesses are they're targeting businesses that are owned by women or owned by veterans owned by people of color or immigrants there are others that are only workin native corporations native american corporations and then finally there are those that work with housing and to create affordable housing or to enable those that want to get into ownership housing so that they are able to afford that so there's a wide range of social purposes for c d f buy but the common thing that we all have is that we are nonprofit we do serve a designated  or geographic area that is perceived as underserved by mainstream financial institutions and we talk about public banks as having a mission a clearly does defined mission at the from the outset so that it's not off a c d f i agency oh absolutely first of all the majority of c d f eyes are very small and they are very limited in what they can do i mean the typical c d f i is going to have total assets probably under five million and they are they have a very limited capacity and ability to do the all of the work that they really want to do so in be able to partnership with a public bank i think that would greatly extend their their reach and the outcome that they can do for their particular community and i think a public bank would give them that you know that additional resource that they have whether it's just money or even technical assistance capacity all of those kinds of things that you know a major institution such as a public bank could afford a community development very little the majority of them had some kind of grant and we did also we had a fairly sizable community development block grant to find financing through the city of seattle a lot of c d f eyes do start out that way  however a lot of them are also getting their funding from a foundation and the u s treasury itself has a c d f i fund that they've had once a year they invite you to apply for their financial assistance grants what we credit lines which the majority of them do they get a credit life from a bank and particularly a bank that wants to invest in the community but they don't have the the really the capacity or the staffing to do that and so they rely on the c to generate the kind of lending in a community and that couldn't meet their community reinvestment act c r a type of objectives to do that but yeah there's a lot of credit lines are being made available to either have a home base or were they have branches or but often they don't want to do business there so that right that's correct and describe it because i think it's a part of the equation part of the of the the picture that as we understand where our financial needs are need to be kind of fleshed out yes well i think the problem came when they realized that a lot of banks would open branches in certain areas and they would get deposits however they would do very little lending in that area so this is very analogous to what a public bank might do is that you know in in the past cities have deposited their monies with a major you know money center type bank but they're not sure that their deposits are coming back to the community they may be going if say this especially if it's a multi state bank they may be lending in and outside you know out of state even out of the country you know the posit are you so it's the same situation with you know  with where you know and i'm trying to remember what we originally were starting out with here on the on the c d f i but they you know they they're really there to keep the money into the community as opposed to having it go outside and what kind that's what we're working you know the one that i happen to be part of we work with small business particularly businesses that are owned by people of color women owned and immigrant own type businesses and affordable housing i mean these are the pressing issues that our particular neighborhood faces and that we need to invest you know financial resources to strengthen our community again you know all of these c d f eyes have their own particular mission they perceive the need or they've defined a perceived need in their community and whether is it is affordable housing small business it could be lending for financial education of individuals because a lot of c d f eyes will do small loans that are  helping the low income population build credit for example or financial responsible financial management all of those kinds of things are within the purview of c d f eyes so they financing that's not available yet in the commercial market exactly and that we've talked about the public bank not wanting to be a lender of last resort yes is the there's the c d f i provide some sort of a screen or a management service that would allow the public bank to faithfully or to responsibly put money in for management because the public bank probably would want to be doing that themselves either with a yes and i think that's very important role and so however they may be at the present time do not have the funding capacity to do all the things that they perceive that they want to do to build that community and that's where the public bank can come in because they can rely on the cd five to underwrite those kinds of loans and then to provide the funding to enable the you know the businesses to get that kind the financing that they need so the of fordable housing is a and  in your case vailable housing because in the rainy or valley in seattle there you know there's no place to live and that of course is true all up and down the west coast and more and more here we have a little bit of a different situation where we've got a lot of properties that are no longer habit yes new jersey has the unfortunate distinction of being the having the most foreclosures of any state so there's a lot of inventory there and there's a need for some creative problem solving around that every guess every c d f eye has its own mission pretty well spelled out but is that a resource a place where a public bank would be able to formulate some new strategies around solving these problems  can you think of who or maybe illustrate ways in which affordable housing has been provided through that that mechanism and what kind of losses do you guys stand well you know the losses are going to be very much regional dependent depending on the overall health of the real estate market but lets the school to your specific you know example or a case that you're talking about in the state of new jersey or certain areas in the state of new jersey  because this is again i'm looking at a parallel situation we had in seattle where we had a nonprofit housing developer nonprofit housing management company that bought out small properties i mean these were i mean these were still habitable but they barely conform to code so we enabled the funding of the acquisition of these properties and loaned the developer enough money to fix these up and then they  created affordable housing in other words they had restrictions on the income levels of the tenets that could live in this project i could see this pride kind of program happening all over the country we in your case are talking about foreclosed properties or abandoned properties those that are already vacant or maybe under some form of distress you know having creating a fund of vailable you know from public bank or it could be channeled through a c d f side that is a specialist in this kind of thing and then working with a affordable housing ownership or investment company preferably a nonprofit so that they have a mission purpose as opposed to just making profits and taking that housing stock and rehabbing it to do so so that it is going to be  habitable and then renting it you know at her appropriate rental level and if the financing were structured properly there would be positive cash flow in that to give a return and you certainly want to repay the loan and have enough for debt service on that but that that's a model i think that to work any place right now do you does your organization get into a hands on personal management or finance valuating business plans for example we're really looking at every that th faces along the way where needs like the skilled labor and or other resources are brought to the table and consolidated you get that deep into your lending well we do get very deep  into individual loans and the capacity of the business to you know operate the business i mean i guess my personal philosophy in lending and i've been doing this for a long time is that i never want to make a loan to a business that's going to enable failure that's not going to enable them to make a profit so we are taking a pretty hard look at business plans to make sure that the plan is going to result in sustainability for that business sustainability meaning that they're going to grow the business it's go profitable and we want that business to make money i mean we're not there to help that business lose money or just stay in business and keep the doors open we want that business to generate money because after all you know that is the a capitalistic system which we you know firmly believe in is t having the business generate a profit and yes yes we will get very deep into the business plan will look at their you know what their challenging market environment that they're in and look at their product mix or you know even in the case that we do a lot of restaurants we look at the restaurant look at their menu did this make sense are you going to be a competitive we look at your labor you know do you have sufficient labor for this you know in our particular city we also are faced with the challenge of a minimum wage so can you be sustainable based on the pricing of your menu items so that you can afford to pay the minimum wage for your workers because i don't want them to have a livable wage that they can live on but on the other hand we also want to make sure that the owners of stays in business so that you know you have enough revenues to cover those operating costs and in seattle the minimum wage is fifteen the yes it is yeah so there's a much different standard you know how much one of your able to make us what about financial literacy do you guys do any educational work in the community for teaching about how money works and management of and so forth is that part of the program as well well our particular institution the rainer valley c d f does not directly do financial literacy is particularly for individuals however for businesses though we do facilitate some workshops and we work with other collaborators in you know where this is a it is still a village i guess in that sense that we work with other collaborators to make sure they get proper training for marketing issues for us social marketing social media marketing is a very big part in the technology economy and then finally things like you know if obviously finance i mean we do a lot of hands on training particularly when it comes to developing business projections and so for that's a big part of our work and there's a part of the work that banks don't spend any time doing right  a kind of and inner beauty or between where the money can come into the community and making sure that it gets her responsibly deployed and into projects that you consider to be viable absolutely right and then i ask about the loss that's a question you know and i guess our experience has been and i think the case of a lot of c d f eyes too is if you're very hands on with your customers whether they be individuals that are buying a home or small businesses or even you know affordable housing because we are in the community the more monitoring you have in the frequent touches and contacts with the borrowers the less your skis meet the less your  are going to being so it's very important to have that that hands on constant monitoring of the portfolio because we when when somebody misses a payment you know we're right on it and banks do not necessarily you know they don't have the staffing to do that they wait for you know you miss three payments in a row with ninety days past due then they send it to collections or their what they call the workout loan department and they send a legal team to gun in there and you know and pretty much take down the business for us when they miss one payment we are mediately on the spot and i think this is true for most c d s pfizer right there on the spot i think to counsel them and there's a lot of ways that you can work through it is very rare that if you get in early enough that you can figure out a way to bring it back on its feet interesting in the history of the bank of north dakota which is the only public bank that the united states has it's one hundred years old and they have a suspended mortgage mortgage moratoriums along the way and i'm presuming that that only pertained to their portfolio but the ability to suspend bank payments at times of crisis yes big storms and fires things that have actually occurred the bank because it was a real part with the community to be able to get through it and i would think that would be just a terrific backstop yes for the kind of commitment that you're trying to realize that you are realizing and in the work that you  there other some other sort of way of a connection that would really invigorate the work that you do because you could only you have some community bank partners right but if you had a much bigger partner written in trenton in this case or it allows you to have additional capacity funding capacity and liquidity you know that the c d f eye is well equipped to to work with the businesses to understand the community and to do that work but then the majority of them you know are going to have funding limitations and with the public bank either directly funding some of these or providing even a loan guarantees on these where then the c d f i can go to a another maybe a community bank and say hey i've got a guarantee or what we call credit enhanced mint on this particular loan the community bank will say yes this this is a risk that we can take because it's not about the risk of the small business it's really you know we're backstop by the public application and to get it approved through the s b a is very onerous in effect a lot of banks are getting away from s b a lending because to get that guarantee you know they have to go through so many steps they said oh either we take the risk ourselves and not get a guarantee or we just don't you know bother doing because we don't make a lot of money doing s b a loans so i thought see the role of a public bank being able to backstop whether it's a c d f fire or even a community bank and say you know we can do some of the same things that the guidelines that the s b a has in the documentation requirements are fairly high and if they if the c d f i can do the loan so can a bank generally if s b a is going to take it on in the second part of that is the you know because s b a does require certain fee for doing this the cost of that does tend to escalate a little bit to the point where a struggling business might find it somewhat onerous to pay the higher rate and the higher fee to do an s b a type type of loan so we're going to be using that in a very judicious manner however if you know either we want to do the loan and we don't even have to put it through an s b a guarantee or we find a public bank that say hey we're circumspect sort of a view about the banking in the financing environment for meeting public needs and services we talked of course earlier about how a bank works and now we're talking about one of the many agencies that works  deploying and distributing funds or getting money into the economy so we don't have that new jersey you know we are all you know we are written with the monies that are appropriated for various variety of agencies and which are limited by their views and we talked about community banks and how the risks are constrained their own portfolios and the other needs that haven't haven't been met which are the ones that you kind of pick on you can reflect on the on the validity of creating a state owned bank relative to these objectives into the mission the utility of money how does that how do you see it fitting into the macand into the architecture into the taxonomy if you will of the financing world stage management well as long as you there there is a need there are unmet needs in your you know in whether it's geographic areas of your state or certain business sectors or certain sectors of your economy here within the state if they're being  whether it's by the the big banks or the community banks and or even state programs that are there if there are stings that are falling through the cracks and there is a political will to to encourage that kind of business formation whether it's start up businesses or maybe technology related businesses or there may be businesses that are people of color women minorities you know veterans is another big area that you know a lot of veterans want to go back and start a business if there are areas that are not being service then that's where i see the value of a public bank coming in and filling that void again we're here as a public bank not to take business away from anybody i think we can work side by side but there also has to be that public a will and mission to serve those either it geographic areas or communities and you see the value to the state or to that means a pallet of of strength in that area and encouraging economic growth in that area so that you can put this vehicle of the public bank into play for that yeah yeah that's well well said i think the an unsustainable reality so having a state bank becomes a way to staunch that stain from from continuing to go to take its downhill of more debt more taxes yeah well wayne thank you so much for joining us wayne loud the executive director of the rainier valley community development fund here from seattle to talk about public banking in new jersey state bank of new jersey one of the prospects that we're working on here you will have more to say about these this topic in coming programs thank you for joining us on the public bank solution if you'd like to have more information you can go through the banking on the jersey dot org website or to the public banking