By Elaine McArdle, Harvard Law Today | July 7, 2021
Harvard Law School students work to create a Massachusetts public bank to help minority-owned businesses, small farms, and gateway cities
Before starting as a student at Harvard Law School two years ago, Courtney Brunson ’22 worked in Washington, D.C. for U.S. Sen. Elizabeth Warren on her economic policy and oversight and investigation teams, focusing on economic inequality and government oversight. Today, while serving as president of the Harvard Legal Aid Bureau, Brunson also is a part-time policy adviser to the Black Economic Council of Massachusetts, also known as BECMA, which is working to advance the economic well-being of Black citizens in the state.
One of the biggest challenges for the 2,000 Black-owned businesses that BECMA represents is getting access to capital in order to grow, Brunson explains. For that reason, one of the nonprofit’s top priorities is the establishment of a public bank in Massachusetts, a state-owned bank that would offer low-cost loans to entities traditionally overlooked or rejected by regular commercial banks. This includes small farms, “gateway” cities with large immigrant populations, Black-owned businesses, and businesses that don’t turn large profits but provide a public good such as affordable housing.
“We’ve heard time and time again from our members and from Black and brown businesses throughout the commonwealth that they need sources of capital,” says Samuel M. Gebru, BECMA’s director of policy and public affairs, who sits on the leadership council of the WilmerHale Legal Services Center at HLS. “That’s where this bank can step up and deliver.”
In February, a bill to create a public bank was introduced in the Massachusetts State House, drafted by HLS Professor Christine A. Desan and a number of HLS students working under her direction and the Massachusetts Public Banking coalition — which includes BECMA, the Boston Ujima Project, an investment fund controlled by community members to support businesses, real estate and infrastructure projects that would otherwise struggle to find financing.
As part of her role at BECMA, Brunson was already deep into the public banking proposal when she learned, to her delight, that Desan and HLS students were also involved. “It was really exciting to see that my work intersected with Professor Desan’s work,” says Brunson.
The public bank would not compete with traditional banks but complement them by loaning to small farmers, minority-owned businesses and others that face difficulties accessing funds. “For us, that’s been the most important message, that there are a host of communities considered un-bankable” by traditional banks, says Brunson, including small businesses just starting out that don’t have the assets or credit score. By growing and flourishing with assistance from the public bank, they could potentially become customers of traditional banks, she adds.
A Massachusetts public bank is not going to be “worried about the bottom line; their bottom line is they are investing in their communities,” says Brunson. “That benefits the business, employees, and most importantly, it benefits the community.
The proposal would require the legislature to earmark $50 million a year over four years for the bank. Proponents emphasize that the public bank would support and complement commercial banks in a number of ways including helping alleviate the cost of loans to certain borrowers so traditional lenders are more open to them. Where the public bank can make those loans through a partnership with a local bank, it would be statutorily required to do so, Desan says. For borrowers that traditional banks still find too risky, the public bank could work with community development financial institutions to loan money.
Currently in committee, the proposal has been endorsed by such heavy-hitters as the Boston Foundation, which in May issued a report highlighting the problems with access to credit that lead to wealth disparities for communities of color. BECMA, Ujima, Desan, and her students are working to garner support for the proposal, including by gathering data to demonstrate the need for it.
“This is the year to do it, to explain that inequities in capital have consequences, that giving businesses of color the opportunity to thrive in Massachusetts could reduce racial wealth gaps and lead to billions of revenue to the community as a whole,” says Brunson. “A public bank is the perfect way for us to address the racial wealth gap.”
Two-thirds of small businesses draw on family wealth to get started, but white families have five to eight times more family wealth than Black families, so Black businesses have a greater need for bank loans, explains Desan, co-founder of Harvard’s Program on the Study of Capitalism. Yet due to racial discrimination, in many cases, or because they are deemed risky prospects due to lack of capital or experience, banks often refuse to lend to these entrepreneurs, Desan says, and it’s not just a problem of the past. During the pandemic, 81 percent of white-owned businesses received the full amount of the federal Payroll Protection Plan loans they requested compared to 71 percent of Black- and Latinx-owned businesses, Desan says, even though communities of color were much harder hit.
Local cities and municipalities would also be potential clients for the bank. The bill prioritizes gateway cities that have large immigrant populations as well as communities of color and that have been hard-hit by the pandemic. Helping these cities thrive is another way to reduce the racial wealth gap and would lead to increased revenues for the state, Brunson notes.
The legislation would provide for the public bank to break even and be sustainable rather than to make profits for shareholders. “Its shareholders, if you will, are the people of Massachusetts, and its success will show up in a more flourishing community and better tax revenues,” says Desan, who teaches about the international monetary system, the constitutional law of money, and political economy. “It is designed to reach communities that need credit and would contribute to public welfare,” such as small farms and others working to address food insecurity, climate change, and affordable housing.
Desan joined the coalition after meeting several of its members at a conference she convened in late 2018, “Money as a Democratic Medium,” which examined different monetary structures and means for allocating credit. Currently, only North Dakota has a state-run bank, but in the early 19th century, there were others including in Kentucky, Vermont, and Massachusetts, Desan says, before the tradition of public banking diminished and left certain groups bereft of access to credit. When Desan discussed public banking in her courses, students volunteered or worked as her research assistants to explore how such a bank would fit into Massachusetts’ financing ecosystem. The Massachusetts Public Bank group and Desan drafted the legislation with much help from Nadav Orian Peer S.J.D. ’16, who now teaches financial institutions at University of Colorado Law School, says Desan.
Other students became involved through a policy advocacy workshop taught in spring 2021 by Clinical Professor of Law Emily Broad Leib ’08, in which Desan offered the public bank proposal as a student project. Some met with the bill’s sponsors to learn how to garner broader support, while others worked with Nancy Ryan, the coalition’s outreach director, to interview small-farm owners about their challenges getting loans. More funding for these farms could help alleviate food insecurity, a focus of Broad Leib’s work as director of the Food Law and Policy Clinic of the HLS Center for Health Law and Policy Innovation.
“Right now, these farmers only have a federal government program that isn’t enough for their financial needs,” says Macarena Bahamonde Villafuerte LL.M. ’21, an Ecuadoran lawyer who interviewed Massachusetts farmers. “The option of a public bank puts public resources and funds to work for the people of Massachusetts.”
Students are also contributing to a survey for executives at community development financial institutions, which are at the front lines of lending to small businesses, to understand how these institutions might partner with a public bank. Hannah Hubbard and Fred Messner, both rising third-year students, will work on gathering information from those executives.
BECMA and Ujima members along with the Mass Public Banking group are meeting with state and federal legislators and private banking executives seeking their support for the legislation, especially to emphasize that it won’t compete with traditional banks, Gebru says.
“It’s really important to know that HLS is at the forefront of a lot of these policy issues” through the work of students and professors like Desan, says Brunson.