Philadelphia: broke unless you count the $11 billion

Putting the common wealth to work for the common good

By Mike Krauss

The finances of Philadelphia and its school district continue their roller coaster ride from one crisis to the next, taking the people of the city – and the children – along for the ride.

The latest jolt was delivered by the School Reform Commission (SRC), the unelected junta that controls Philadelphia public education. Meeting in an almost clandestine session, the SRC abrogated a long standing contractual agreement  with the teachers and compelled them to make contributions to their health care benefits.

Some will look at this and say, “Well, I pay for my health care, so why not teachers.” Sounds reasonable, until you consider the facts.

Teachers make a considerable investment in their own education.   Many are burdened with the debt they incurred for that education. They want to see a return on that investment, like any smart private business person, the kind who sit on the SRC.

In contract negotiations, health care is a part of the teachers’ compensation, in place of higher pay. It makes more sense to buy health care as a group and get lower premiums, than to take more salary and buy health care individually.

So the action by the SRC is in fact a pay cut, which was justified by two arguments which don’t stand up to scrutiny.

The first is that the savings by the district can be immediately distributed to our struggling schools for such critically needed items as teaching material, counseling, nurses and all the many critical aids to good teaching that have been cut.

The teachers are made to pay for what the people’s government will not.

What’s next? Will  police be asked to pay for their uniforms and weapons? Will firefighters be asked to pay for their protective gear?

The second argument for this pay cut for the teachers is that “There’s no more money.” But that is not so. This city has lots of money. It is just not managed to maximum benefit for the city.

The people of Philadelphia hold more than $11 billion in investments, managed by the Pension and Retirement Board, the Treasurer or various agencies and authorities. It is managed, in the case of the Pension and Retirement Board, by more than 100 different managers of different types of investments, financial products.

The Pension and Retirement Board regularly moves that money around from one investment to another, generating fees and commissions for the managers, but no appreciably greater return than had the money sat in the stock market.

Virtually none of the $11 billion is invested in and at work in the city, creating jobs and the tax revenues that can support a first class, world class education for our children.

There is an alternative.

Some portion of those investments – say  5 percent, or about $550 million - can be redirected into an equity position in the formation of a pubic Bank of Philadelphia, modeled on the hugely successful public Bank of North Dakota (BND).

Those funds are then leveraged as with any bank, in partnership with our community banks, credit unions and development agencies to generate many times that amount in affordable credit – the life blood of modern economies – flowing into the city.

For job creation, neighborhood improvement, infrastructure, sustainable business, better schools and more  - all those things the people of this great city deserve, but are told are not affordable.

The BND last year returned $94 million of profit to the state’s general fund, helping to post yet another budget surplus. No layoffs or cutbacks. It has $3.2 billion dollars invested in that state’s economy, with a population half that of Philadelphia, helping to drive unemployment to 2.6 percent. It helps reduce the interest paid on bond issues – public debt – and interest paid is to the people and into their own bank.

Perhaps most important, the state deposits its own money in its own bank, safely away from the casino on Wall Street, whose banks have done this city great harm but only small favors.

For too long, Philadelphia’s leaders have fought the annual budget battle with the same old tools – layoffs, cutbacks, more taxes, more debt or givebacks from employees.

Public banking is the new tool this city needs to build a new future of broadly shared prosperity, opportunity and justice for all its sons and daughters.

And get the city and its children off the roller coaster.

Mike Krauss is Chairman of the Pennsylvania Project and a founding director of the Public Banking Institute. www.publicbankingpa.org