Testimony to Philadelphia City Council in Favor of a Public Finance Authority
A couple weeks ago I testified to the Philadelphia City Council in favor of legislation that would take a step closer towards creating a public bank for the city. I was helping out with the Philly DSA initiative to support the coalition behind this demand (led by the inimitable group Neighborhood Networks), which would be the first of its kind in an American city. My testimony was short but I tried to make it punchy. I can report a victory here: city council voted 17-1 to pass the bill! Philly took one big step closer to having its own public bank, the significance I try to explain below.
Good afternoon Councilmembers,
My name is David I. Backer. I’m a professor of education policy at West Chester University. I live in West Philly, I’m a member of Philly DSA, and I’m a parent to a two year old who will attend Philly public schools.
As a scholar of school finance and a parent, I am thrilled to support the creation of a Philadelphia Public Finance Authority. The connection between school finance and this authority might be a little obscure, so my testimony tries to make this clear.
Philadelphia’s school buildings are in dire need of transformative financing. The buildings are old and due to structural injustices the district and city have not been able to keep up with their maintenance. A public finance authority such as the one considered today would help. How?
When the district wants to do larger projects on schools, it has to take out a loan through a for-profit market called the municipal bond market.
Getting one of these loans is like going to a big party. There’s a lot of people. There’s the district, who needs money for things like elementary school HVAC systems. There are investors who might front money for this loan. There are also consultants, lawyers, ratings agencies, and institutions helping make sure the deal is kosher. The bank is like the host.
If you've ever been to a big party, you know that there are some shady characters. Some friends, friends of friends, and some people that seem like friends that really aren’t.
This muni bond market party is similar. For one thing, everyone is there to make money except the school district. Investors are there to make money on the loan’s interest. Consultants and lawyers charge high fees. Even the credit rating agencies charge for their services! The district is like a nerd at a football team rager.
School districts get taken advantage of in these situations. On average, municipal bonds are rated worse and incur higher fees than private ones because securities and exchange experts don’t see public financial deals like school bonds as “real business,” like the stuff that private for-profit corporations do. They’re not wrong. Education is a public good. It’s supposed to serve everyone, not just make the rich richer.
So the school district gets his lunch money taken from him by bullies who are more popular. Maybe the host—the bank—notices this, but she’s got all kinds of things going on and saying hi to everyone, not really looking out for the district (private banks also are trying to make money).
Now imagine the school district has a wingperson at this party. This friend is like a nerdy football player who has the respect of everyone but is there to advocate and protect the district. She comes with the nerd to make sure others don’t take advantage of him. This person’s goal is to make sure the nerd doesn’t stand out, doesn’t get his lunch money taken, doesn’t get taken advantage of, and has a good time.
That friend is the Philadelphia Public Finance Authority. So I’m excited about the possibility of this Authority coming into existence in Philly, a city that’s been pushed around and bullied enough when it comes to finance. Plus, passing this legislation to create the Authority is one step closer to creating a public bank, which would be like the school district going to a party hosted by their wingperson—even better! I urge you all to vote in favor of this legislation.