Berkeley continues to actively explore a Community Microbond Initiative that would create “crowd-funded public finance,” according to Councilman Ben Bartlett, who brought the idea to the Berkeley City Council in April 2018. The council subsequently approved the initiative, which proposes to “democratize the muni bond market” by reducing the bond ownership cost per person dramatically — and slashing the cost to the city by using blockchain to “track ownership, transactions and interest payments in real-time.” Bartlett said it's his hope the per-person cost could be around $25. Among the takeaways:
• The project isn’t underway yet. Following an informational report on June 25, the city council voted to move the initiative to its action calendar. The matter is currently being researched, a staffer told Techwire, and could be revisited at the request of a council representative. Bartlett told Techwire it’s his estimate that the city might be ready to issue an RFP for a pilot in about three months.
“We really want to encourage cooperation between new companies and big companies. So that the new, small businesses can get a leg up and into the market,” Bartlett said. In a June 19 Medium post, he offered a pre-written support email for residents to email the city council.
• Like other Bay Area cities, Berkeley faces challenges including gentrification, homelessness, a lack of affordable and senior housing, and aging infrastructure. Looking for ways to address these problems, it drew financial inspiration from Denver, which raised $12 million by issuing $500 mini-bonds in 2014; and Cambridge, Mass., which raised $2 million in $1,000 mini-bonds in 2017. Denver’s $500 mini-bonds to fund recreational and cultural facilities sold out in the first hour; Cambridge’s “non-traditional financing” for capital projects earned it the 2017 “Deal of the Year” from The Bond Buyer.
Bartlett said micro-bonds is a way to make bonds affordable while potentially addressing foundational societal issues. For a pilot, however, he said the city’s finance director has suggested using micro-bonds to purchase a new fire truck — and raise $2 million to $4 million.
Assembly Majority Leader Ian Calderon, D-Whittier, and co-chairman of the California Legislative Technology and Innovation Caucus, told Techwire he’s “curious to see the outcome” of the initiative.
“I just think that there (are) so much more efficient and creative ways that we can use this type of technology, for a great public good. But it’s hard to do that when there isn’t clear thorough understanding of the technology,” said Calderon, a member of the state's new blockchain working group.
• Using blockchain, the electronic ledger technology, to track micro-bonds once they’re issued isn’t just transparent — it’s likely a way for the city to overcome the additional cost of multiple, smaller bond-related electronic actions and interactions.
“Blockchain has the potential to improve public sector performance where existing practices are costly, slow or unreliable,” Bartlett’s office said in its 2018 Initiative presentation.
“The blockchain technology, once we honed in on it as a medium of doing this, it became really clear as to why it worked, because you could automate many of these processes. You can do anything with it. And very fast and very secure,” Bartlett said. He indicated a vendor showed him estimates based on the project’s size and scale and the city’s credit rating that projected Berkeley “would save 48 percent in the issuing cost” by using blockchain.
Michael Coleman, who runs transparency website californiacityfinance.com and serves as fiscal policy adviser to the League of California Cities, said the cost of bond “issuance is certainly an issue when you look at debt financing, municipal financing. It’s one of the reasons why I encourage municipalities to think about ‘pay as you go’ whenever possible, and think about whether debt financing is really the way to go.”
“I think it’s healthy to question these things and to try things that are new. I’m all for looking at new ways to do things,” Coleman told Techwire, when asked about exploring emerging technologies like blockchain.
