Sunday, March 28, 2010

Cities should press banks to help small business

A city-government tactic to persuade bankers to help struggling homeowners in a down economy could -- and should -- be put to use helping small businesses.

A story in the Denver Post on Saturday suggested that a strategy used by the city of Philadelphia to encourage bankers to go easy on troubled mortgage holders or risk holding on to city-government deposits in their banks could also be used by Denver-area municipal officials to slow the number of Colorado foreclosures.

The Post talked to two Denver city council members who said they had thought about wielding the banking tactic, but neither was very committed to the prospect. As I wrote here Thursday (see below), real estate is a protected industry of the political establishment in Colorado. Banking is not far behind, so putting financial pressure on those industries would not be considered a wise political maneuver.

The money at stake, however, is huge. Christopher N. Osher of the Post reported the city of Denver has about $2.4 billion deposited in local banks and an additional $1.7 billion in pension investments available for such use if Denver city government chose to shift deposits to banks that cared enough about homeowners to help some stay in their houses.

The same could be said of helping small-business owners who are underwater as a result of the recession. Nobody is suggesting bailing out poor managers, but if local city governments could pressure banks to loosen up credit for small businesses that need the money, the governments would be indirectly saving and creating jobs in their communities without spending taxpayer dollars or busting their own municipal treasuries.

Economic power can be wielded in many different ways, and city officials, even if they are Western city officials, should explore whatever ways they have available to them to promote successful small-business operators in their towns. Small business is the source of most jobs in any state. The last national figure I remember seeing was that small businesses are responsible for at least 48 percent of jobs in the U.S.

Helping small businesses helps any region's ecomomy, and all governments have a stake in helping local businesses expand and prosper.

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