You heard it from us first, but it's good to know Mother Jones is taking up the cause. As Jack Hitt reports, every time you hear about police brutality, whether a shooting or an assault, you should ask yourself how the city or county that pays that cop is financing its operations and services. Are they employing cops as de facto tax collectors?
Hitt eloquently writes of the "fiscal menace" "lurking beneath" police brutality incidents:
When you ask why such "bad" cops are nevertheless armed and allowed to patrol the streets, one begins to see that lurking beneath this violence is a fiscal menace: police departments forced to assist city officials in raising revenue, in many cases funding their own salaries—redirecting the very concept of keeping the peace into underwriting the budget.
We saw a glimpse of this when the Justice Department released its report on Ferguson in March. In his statement, then-Attorney General Eric Holder referenced a lady in town whose life sounded Walter Scott-like. She had received two parking tickets totaling $151. Her efforts to pay those fines fell so behind that she eventually paid out more than $500. At one point, she was jailed for nonpayment and—eight years later—still owes $541 in accrued fees.
The judge largely responsible for the extraction of these fees from Ferguson's poor, Ronald J. Brockmeyer, owed $172,646 in back taxes, a sum orders of magnitude greater than any late fine coming before his bench. Even as he was jailing black ladies for parking tickets, Brockmeyer was allegedly erasing citations for white Ferguson residents who happened to be his friends. After the report's publication, he resigned so that Ferguson could "begin its healing process."
But consider: In 2010, this collaboration between the Ferguson police and the courts generated $1.4 million in income for the city. This year, they will more than double that amount—$3.1 million—providing nearly a quarter of the city's $13 million budget, almost all of it extracted from its poorest African American citizens.
Evidence also suggests that this new form of raising revenue—policiteering?—goes far beyond Ferguson.
He's right. As we pointed out last December, there are specific law- and rule-changes that have exacerbated these fiscal crises. Mainly, both the Federal Reserve and federal laws have made it harder to protect the methods we have traditionally used to finance municipal budgets.
Funding cities is increasingly difficult during this time of enforced scarcity and disingenuous austerity. Property and sales taxes are unpopular, and now municipal bonds are in big trouble. The Federal Reserve recently changed the liquidity requirements for the big banks that typically finance government budgets through municipal bonds. Those bonds, or "munis," have been considered safe liquid investments for a long time. But the new regulations eliminated munis from the "high-quality liquid collateral assets" category. This means that the biggest banks are now unlikely to carry their holdings in munis, which, according to Wall Street on Parade, "could raise the cost or limit the ability for states, counties, cities and school districts to issue muni bonds to build schools, roads, bridges and other infrastructure needs. This is a particularly strange position for a Fed that is worried about subpar economic growth."
We've also relentlessly reported on the cost of risky financing schemes to cities. One of the most tragic recent results of this was the collapse of Chicago Public Schools, due to the use of debt swaps and other risky schemes.
All of these phenomena--closed schools, police brutality, cities with bare budgets, Wall Street banks getting richer--are interconnected. The solutions must include public banks, where cities and counties (as well as states) can capitalize their own budgets and fulfill their own fiscal priorities without gambling on interest rate swaps, making Wall Street shareholders rich, or risking interest rates that double the cost of infrastructure and construction projects.
Banking on New Mexico does a good job describing how public banks work in the context of municipal financing:
Public banks can be chartered and managed so they support local lending within the jurisdiction in which they operate. A public bank can partner with a local bank to increase access to credit for local priorities. They can either co-lend with a community bank or purchase loans made by community banks, allowing those banks to make additional loans that benefit the local economy. Investment is within the governing community, maximizing public good within that community rather than maximizing profits through global investment strategies. It can directly fund governmental projects like services or infrastructure
Public banks can be prohibited from speculating in risky derivatives that can’t be adequately regulated. This would prevent bailouts that ultimately burden the taxpayer or a bail-in that might claim public government and private investor’s funds. Further because of our fractional reserve banking system, public banks magnify the money the governing entity can deploy for economic development and infrastructure investment, up to ten dollars of investment in loans for local interests from each dollar the governing entity sends to its public bank. Like a private bank, a public bank charges interest to borrowers, which generates earnings. Since it does not pay dividends or be required to show earnings to outside investors, which a private bank must do, it can return its earnings to the government. Or it can forgo some of these earnings and offer that governmental entity below-market borrowing costs. In either case, the governing entity benefits.
. . . and yes, this translates into more stable cities and counties, less police intervention (because the police no longer need to be primary revenue collectors), fewer unstable contexts that might give rise to incidents of violence (because municipalities will be doing better financially, as will the economic zones contained within them).
It's good to see Mother Jones and other publications recognizing the problem. The next step is articulating the solution.