US Municipalities and Public Banking

[eridani]

http://www.publicbankinginstitute.org/shockingly_u_s_treats_municipalities_worse_than_other_countries


We know municipalities have been in trouble in the U.S. since well before the 2008 recession, and we know Wall Street has been kicking them while they're down, charging prohibitive interest and exploitative financing and debt servicing fees. But how does this compare to other countries? An article last year by Frank Shafroth at Governing contrasts the American municipal experience with that of Canada and Germany. In "Why Cities Can't Go Bankrupt in Canada or Germany," Shafroth writes that Canadian taxes help municipalities' income streams greatly, while in Germany,

which has 16 states, some 450 counties and 12,500 towns and cities, municipalities have responsibilities for public order, infrastructure, cultural institutions and public transport. To finance these essential services, German municipalities draw not only upon three local taxes (two property and a local business tax), but also allocated tax revenue from income taxes, federal value-added taxes and state-allocated grants. The shared tax base eliminates overdependence on a property tax and serves to balance disparities in both resources and needs at the local level.

Taxes are fine and all, but taxes are politically unpopular, and there are a couple of things Shafroth doesn't mention in his article, but that two readers of it do. I don't normally read the comments on internet news stories, because many comments are more offensive than if Charles Manson had directed "Three Men and a Baby." But the two wonky (in a good way) comments on the story in Governing illustrate two important points about how we should --and perhaps should not-- take care of our municipalities. One reader says that heavy fiscal control of cities in Canada by a non-local government leads to bad prioritizing and a misunderstanding of local needs, providing the example of the national government prioritizing its "provincial taste for ring road highways over urban flood prevention." I get that. As long as localities are treated equally and treat their own residents with material and political equality under the law, I think local governance is nearly always better and ought to be a proactively supported norm. Wouldn't it be great if there were a way to achieve strong local control and guarantee fiscal stability and shared prosperity in those communities?

Well, the other comment concerns public banking, and makes clear the error of omitting mention of Germany's strong public banks that, in the view of the reader, create "unparalleled stability in the financial sector."

The German public banking system is entrusted with 40% of total banking assets in Germany. In addition to public consumer and savings banks, many German public banks act as business development and infrastructure financing institutions. The public banking sector employs well over ten thousand Germans and manages nearly 900 billion euros. German Landesbanken act as business and mortgage banks. A subset of Landesbanken are Landesbausparkassen, or real estate banks. "Because of the landesbanken," Peter Dorman wrote in 2011, "small firms in Germany have as much access to capital as large firms; there are no economies of scale in finance. This also means that workers in the small business sector earn the same wages as those in big corporations, have the same skills and training, and are just as productive"