The Black Economic Council of Massachusetts is throwing its newfound political muscle behind an unusual cause this year on Beacon Hill: persuading lawmakers to start a public bank.
Worried that Black-owned businesses will be left behind in the recovery after the COVID-19 pandemic, the council is pushing for the formation of a state-backed lending institution that would help provide low-cost financing and close some of the longstanding inequities in the economy.
Importantly, a state-owned bank would not replace for-profit lenders, but would work with traditional banks to make credit more available to small businesses, such as the roughly 2,000 Black-owned businesses represented by the council and others owned by people of color.
“This would be additive to the existing ecosystem,” said Samuel M. Gebru, the council’s policy director. “It’s not going to be a competitor.”
A public bank is among the highest priorities on a long list of legislation the council is backing for the 2021-2022 session, according to a rundown of its lobbying plans released Wednesday. Among the measures drawing the group’s support are bills that would address everything from a transfer tax on high-end properties in Boston to pay for affordable housing to a new competitive grant program for startups owned by people of color.
There is only one state-run bank in the United States, the Bank of North Dakota, which provides student loans and works with local banks to backstop business, residential, and agricultural loans. In Massachusetts, BECMA is supporting a similar concept — although this one doesn’t mention student loans, for example — contained in legislation sponsored by Senator Jamie Eldridge and Representatives Mike Connolly and Nika Elugardo.
The legislation calls for creating a Massachusetts public bank that would, among other things, help businesses and municipalities recover from the COVID-19 pandemic, expand affordable financing in the state, and ensure that public deposits are used to finance economic activity within the state. The legislation would require lawmakers to set aside $50 million a year in state funds for the bank, over four years.
“We’re thinking about traditional banking that has often ignored Gateway Cities,” Gebru said, in reference to older industrial cities that often feature large immigrant communities. “We want to make sure a public bank, funded by the Commonwealth, backed by the Commonwealth, invests in Gateway Cities, invests in small businesses.”
Many of those cities also have reported relatively high rates of COVID infections, and BECMA is particularly concerned that vaccination rates in communities of color remain roughly half of the state average.
The state-owned bank proposal is receiving a second push this week, from the influential Boston Foundation, which is expected to release a report on Thursday highlighting the disparities in access to credit between white-owned small businesses and those owned by people of color. Among the foundation’s proposed solutions: the same public-bank legislation that BECMA is pushing, with the idea that such a bank could substantially expand the supply of credit to entrepreneurs of color.
Massachusetts officials have previously explored the idea of a state-owned bank, most notably a decade ago, when the Senate president at the time, Therese Murray, proposed studying the concept as part of a broader economic development bill after the Great Recession. Murray and other lawmakers were trying to divine why North Dakota had the lowest unemployment rate in the country at the end of 2009. (In March, North Dakota’s unemployment rate of 4.4 percent put it closer to the middle, although lower than the national average of 6 percent and the Massachusetts rate of 6.8 percent.)
The Legislature did end up launching a commission to study the feasibility and benefits of creating a state-owned bank. But that commission, which included a number of people from the banking industry, ultimately recommended against doing so in 2011, citing in large part a report done that year by the Federal Reserve Bank of Boston. Among other things, the commission decided it would require too much upfront money with an unclear proven need, and that it was difficult to compare North Dakota and Massachusetts, given their vast differences.
The commission also noted the launch in 2010 of the Massachusetts Growth Capital Corporation a quasi-public agency created to help meet the credit needs of small businesses.
But BECMA’s chief executive, Segun Idowu, said the need for a public bank has been demonstrated time and again, by the hardships faced by businesses owned by people of color. Idowu citied the rollout a year ago of the federal government’s Paycheck Protection Program, in which many Black-owned businesses struggled to participate initially, in part because they did not have relationships with traditional banks. He also pointed to one estimate that fewer than 1 percent of all venture capital-backed startups are owned by Black entrepreneurs.
“There’s clearly a structural racism problem in the industry,” Idowu said. “I know different leaders are working on trying to correct it at their own banks . . . We all need to transform the entire industry. That’s why the public bank is one of the issues that we’re championing.”