PPBC One Page on Disaster Relief
Issue: How Can Philadelphia Be Better Prepared Financially for Disasters Like Covid-19
Like the rest of the country, Philadelphia’s well is running dry in the effort to keep its economy afloat and its people healthy during a pandemic. Business as usual will not suffice.
Need: A Mechanism That Can Get Money Fast To Those Individuals, and to those Public and Private Entities, Who Have No Safety Net to Protect Themselves in the Crisis.
Small businesses are shuttered, hospitals have shortage of beds, workers have lost their income overnight. At best, if they get aid from the federal government, red tape could delay it for months.
Solution: Create A Philadelphia Public Bank to Keep the City Whole
Philadelphia will soon get the results of a study on how to establish a public bank. It is too bad we do not already have one. Such institutions are uniquely prepared to spring into action in times of crisis like this COVID-19 challenge. A Philadelphia public bank could provide the financing to secure local emergency facilities, supply face masks, buy disposable hospital gowns, and order respirators. It could direct disaster relief money to small businesses before they are unable to meet payroll or pay their rent. The Federal check is in the mail and should arrive in a month or so, but a local bank could buy supplies today and wait to get replenished by the feds.
This is not a new concept. In 1997 North Dakota used its public bank, established in 1919 and owned by the State, to bring instant relief to residents stricken with disaster. That year during an extremely harsh winter, the Red River Valley flooded and the Bank of North Dakota, sprang into action. BND in partnership with local banks provided loans immediately to ranchers, homeowners and small businesses. The funds were used to repopulate herds, rebuild homes and reopen businesses without the red tape and delay of Federal programs. When the national government got disaster funding through the pipeline, the afflicted communities reimbursed the Bank for its interim support. Over the years since then, BND has paid out 200 million after tornadoes and floods to get money to afflicted communities immediately, well in advance of federal disaster aid.
In Germany, we have an example on a national level of how a public banking infrastructure is helping disaster relief for the disruption caused by the COVID-19 pandemic. The KfW, the country’s public bank network, will provide all the credit German companies will need to stay afloat during the coronavirus crisis. On March 13 Germany’s Finance Minister Olaf Scholz was quoted in the press saying “There is no upper limit to the credit offered by KfW ...If [the pandemic] lasts longer, we can go on longer. You can be courageous; the risks will be carried by us.” Minister of Economics and Energy Peter Altmaier added that $604 billion in government-backed loans is just for starters. He promised “We will not fail because of a lack of money and political will. This means that no healthy company, no job should find themselves in trouble.” Businesses in Germany can immediately access loans over $500,000 through their local banks called Sparkassen. The loans carry an interest rate as low as 1%, with interest-only payments for the first two years.
In contrast, in the USA, our National government had to have a mud-wrestle to enact an encyclopedia-sized one-time relief package to support business and sustain employment. As historic as that package is, it does not create a framework for managing the financing of future societal challenges like the ones that the slowly accelerating environmental crisis has set directly in the road ahead – tornadoes, wildfires, floods, drought, pestilence, crop failure and population migration. It is past time to create public banks to meet these challenges. Let’s start in Philadelphia.
