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The Color of Money

Day four, article six

City Hall clout could sweeten home-loan pot

Municipal deposits a bargaining chip, activists contend

By Bill Dedman, The Atlanta Journal-Constitution

Published May 4, 1988, Page A9

Copyright 1988, The Atlanta Journal-Constitution

In 1979, when most Atlanta banks excluded blacks and women from their boards of directors, Mayor Maynard Jackson threatened to move city money to banks in Birmingham or California. The Atlanta banks found seats in the board rooms for blacks and women.

In 1984, when some Atlanta banks loaned money to South Africa, the City Council made it illegal to put city money in banks that continued the loans. The banks stopped lending to South Africa.

Today, Atlanta banks rarely lend money to homebuyers in black and integrated neighborhoods, according to The Atlanta Journal-Constitution's lending study.

Activists protesting lending practices in Atlanta say it's time to use city deposits as a lever again.

"In the city we have a black political structure. Why not exercise some of that clout on the white business community, the banks, the foundations, the United Way?" asked the Rev. Craig Taylor, housing developer with the South Atlanta Land Trust and a director of the Atlanta Community Reinvestment Alliance.

Atlanta's political powers are not united on the question.

Only one leading politician, City Council President Marvin Arrington, spoke for more regulation.

"There's no question in my mind that I would approve an ordinance like this," Arrington said. "If it wouldn't pass, what did Martin Luther King Jr. live for?"

Mayor Andrew Young expressed more ambivalence.

He recalled that he had less trouble getting a mortgage from a savings and loan when he moved to Atlanta in 1961 than he had had in New York City.

"I would hate to think we've slipped," Young said. "It's the kind of thing you want to hope we've moved beyond. If there is serious redlining, it's not good for the city. It poisons the whole city."

At the same time, the mayor said he thought banks were not intentionally avoiding black areas, but might be fearful of risking money anywhere in the city. He said Atlanta bank financing has eluded even white developers of commercial property, such as John Portman.

After a real estate crash in the 1970s, "the banks lost a lot of their bullishness on Atlanta," Young said. "But they've made money hand over fist being conservative. The city's grown -- almost despite them."

Young said he hoped that city regulation would not be necessary. He said the banks have responded well to his personal pleas for involvement, such as for Underground Atlanta and loans to help finance the Democratic National Convention.

The two men most likely to compete to be the next mayor also stressed negotiation first.

Fulton County Commission Chairman Michael Lomax has received contributions from banks for his 1989 campaign for mayor but also said he was turned down by two banks for a home-improvement loan because he lived in the wrong neighborhood. Lomax opposes linking city deposits to bank lending.

"I've never encouraged that in Fulton County. My preference would be to raise the issue with the banks in a positive way," Lomax said. "It can be a win-win situation. Nobody has to lose for blacks to make their neighborhoods acceptable."

And Jackson, the city's first black mayor and expected to be a candidate again next year, hopes to raise campaign funds from the white business community, or at least to blunt its opposition. He said pulling money out of the banks is an option, but not the first option.

"I like to try to negotiate things first," Jackson said. "You're talking about conservative institutions. That's not going to change. There are probably banks that are going to be more responsive than others; we have to find those banks and work with them, organize their efforts. To whatever extent we can legally and economically leverage city money, I'm willing to consider that."

Some cities and states have used city deposits to increase lending.

"After you get done impugning each other's motives, and who should do more for whom, and how somebody's a rat and you're not, and you get past that level, ultimately you have to get down to what's practical," said George Stone, first deputy commissioner of Chicago's Department of Housing.

"Taking money out of a bank is practical."

Governments have tried two approaches: the carrot and the stick.

The carrot: Put government deposits in banks to reward them, or set aside city funds as a loss reserve for loans to lower-income homebuyers and small businesses. Chicago, Iowa, Michigan, Missouri, Ohio and Wyoming have tried such measures.

The stick: Chicago, Washington, D.C., Hartford, Conn., Colorado, Illinois, Massachusetts and West Virginia place government funds only in banks that meet specific standards for lending.

To determine which banks should receive taxpayer deposits, other governments have required banks to disclose where they make business loans, where their depositors live and their lending rules.

Deposits are the raw material of banking, like iron to U.S. Steel. And Atlanta's five largest banks receive more than a billion dollars in public deposits from local, state and federal governments -- 6 cents of every dollar in the bank, according to bank annual reports.

Most of the money in Atlanta's $290 million budget is funneled immediately to investments, mostly at banks. On an average day the city has about $1.4 million in regular accounts, according to Pat Glisson, city commissioner of finance.

The city used to rotate its 12 larger checking accounts from year to year among what were the city's five largest banks. Beginning January 1987, the city pooled its funds in one account and sought bids from banks. The bank offering the highest return on the city's money got a two-year contract. That was First American Bank. The next bids will be taken this fall.

First American ranked last in the Journal-Constitution's study of lending to comparable white and black middle-income neighborhoods. Recently it stopped making home-purchase loans altogether.

Besides the general fund, the city keeps other accounts in the black-owned Citizens Trust Bank and in First Union Bank.

Citizens Trust, too small to compete for the general fund, receives the city's federal grant money.

First Union, previously First Georgia, handles the city's two pension funds. It was the first Atlanta bank with a black director.

While the city isn't using its deposits as a lever, Jackson suggested that residents could.

"You've got to ask yourself, `Do I want to continue doing business with that bank?' And the answer is no," Jackson told a recent meeting of the Association of Communities Organized for Reform Now (ACORN). "They're using your money to lend to somebody else."


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