Measure Z: Can the Public-Bank Model Work?

Measure Z is a six-year Berkeley parcel tax. The measure authorizes up to $0.06 per square foot of residential improvements and $0.09 per square foot of nonresidential improvements, with annual inflation adjustments. The City Attorney estimates about $9.2 million in the first year and $58.3 million over six years.

The proceeds go into a special fund to capitalize and support a public bank that includes Berkeley in its service area. This is therefore not merely permission to explore a bank; Berkeley property owners would supply a substantial pool of dedicated capital.

The tax base is Berkeley; the institution is regional. Measure Z requires the bank to include Berkeley in its service area, but it does not restrict lending to Berkeley. Public Bank East Bay's 2022 viability study described the project as a cooperative venture among Berkeley, Oakland, Richmond, and Alameda County. PBEB's current materials say its vision includes the entire East Bay, and its own examples include projects in Oakland, Richmond, and unincorporated Alameda County.

That may be a reasonable regional investment. But it creates an obvious allocation question: Berkeley property owners are being asked to supply this capitalization tax while residents and projects elsewhere in Alameda County and the East Bay may share in the benefits. Voters should be able to evaluate what Berkeley receives in return for carrying that particular tax burden.

Measure Z contains a substantial fallback. If the bank has not secured authorization by June 30, 2033, the special fund may itself be used to offer qualifying loans until authorization is secured. Tax proceeds may also reimburse actual, verifiable City staff costs for work necessary to make those loans.

That solves one legal problem—what happens to the dedicated fund if the charter is delayed—but it opens an operating one. Who would do the banking work? Lending requires credit analysis, underwriting standards, documentation, portfolio monitoring, servicing, compliance, information security, collections and troubled-loan workouts. If no chartered bank exists, the measure does not itself identify the qualified team, outside partners, governance structure, compensation, systems, or risk controls that would perform those functions on behalf of the special fund.

The fallback therefore does not eliminate the operating-model question. It makes that question more urgent.

A bank cannot substitute mission or volunteer enthusiasm for professional capability. California's bank-chartering guidance requires experienced management, adequate capitalization, realistic projections, a reasonable likelihood of successful operation, and officers whose experience fits their jobs and any specialized services. DFPI says a qualified CEO is essential and expects a qualified chief credit officer and chief financial officer to be identified.

PBEB publicly describes an experienced CEO, top executives, a small paid team, and partner financial institutions. What voters still need in order to test the economics is the staffing schedule and division of labor: who does underwriting, portfolio monitoring, compliance, cybersecurity, finance, operations, vendor management and workouts; what those functions cost; and what partners or vendors charge.

Markets can leave worthwhile borrowers unfunded. Small loans can be expensive to underwrite, collateral rules can exclude viable borrowers, lenders can lack local knowledge, capital can be constrained, and discrimination can persist. PBEB itself documents those kinds of gaps.

But those facts do not establish that a large portfolio can simultaneously offer below-market or flexible terms, cover professional underwriting and servicing, absorb defaults, pay funding and partner costs, and sustain the bank. That requires evidence about the borrower pipeline, repayment performance, defaults and loss severity, servicing costs, pricing, concentration limits and any subsidy built into the model.

The measure requires the City Manager to report annually on funds collected and spent, performance metrics, outcomes, accomplishments, and progress toward capitalization and charter. At least every three years, the City Auditor must independently audit expenditures and progress to confirm that spending and reports are accurate and consistent with the ordinance.

That is meaningful oversight. But it is not the same question as whether the original business case was sound. An audit after money is spent does not by itself establish that the projected loan pipeline existed, that staffing and partner costs were realistic, that underwriting risk was appropriately priced, or that Berkeley received benefits commensurate with the capitalization burden it assumed. Those are questions voters need answered before authorizing the tax, not only after expenditures begin.

CalPERS is itself a major participant in conventional capital markets. For the year ending June 30, 2026, it reported a preliminary 14.8% net investment return and $637.1 billion in assets. Its reported asset classes include public equity, fixed income, private equity, private debt and real assets.

PBEB can reasonably argue that more public money should be invested locally or that governments should retain more banking income. But the contrast between public benefit and private profit is incomplete: market returns also help finance public pensions and other retirement savings. The useful question is who bears the risk, who receives the return, and whether the proposed bank can produce adequate returns after staffing, compliance, funding costs and loan losses.