Colorado’s Big Banks Must Do Their Part

 

The economic crisis has taken a deep toll on Colorado. Families have lost their life savings, income, quality of life, and in many cases, even their jobs and homes. Across the state, neighborhoods are reeling from devastating cuts to vital services like health care, education and public safety. Loss of public service affects all communities, but it especially impacts the most vulnerable—seniors, children, the disabled, low-income households and communities of color.

 

While Colorado was struggling to make ends meet, Wall Street paid out astronomical bonuses again this year. Wells Fargo, Colorado’s largest bank paid a staggering $26.1 billion[1] in bonuses, benefits and compensation in 2010, enough to cover the budget gaps of 30 states and the District of Columbia in FY 2012.[2] In fact, 37 cents out of every dollar that Wells Fargo took from our communities in 2010 went straight towards banker pay.

 

Even as every Coloradan is being asked to carry the yoke, the state’s largest banks continue to horde their wealth. They are not paying taxes, taking Coloradans’ unemployment benefits, gouging state and local governments with toxic swaps, destroying communities through foreclosures, not lending to small businesses, and charging Coloradans millions in fees. The big banks broke our economy and caused our budget crisis. They are the reason we have to choose between funding education and public services. It is time for the banks to start pulling their weight.

 

Not Paying Fair Share of Taxes

           

Wells Fargo’s 2010 federal income taxes:[3]                           $1.4 billion

Well Fargo Effective Income Tax Rate 2010:[4]                      7.5%

Top federal income tax rate:                                                 35%

 

Even though Coloradans pay up to a third of their salaries in state and federal income taxes to help pay for critical services, Colorado’s biggest bank refuses to pay their fair share. Instead, Wells Fargo paid out nearly $26.1 billion in compensation and bonuses, just a fraction of which could have helped bridged Colorado’s $450 million budget gap for FY 2012.[5] Despite Wells Fargo’s high profitability, in 2010, their legal tax obligation amounted to a rate of 7.5 %, which is far below the federal tax rate of 35%.

 

Taking Coloradans’ Unemployment Benefits

           

Fee for visiting a teller at a branch more than twice per month:[6]                          $5.00

Fee for out-of-network ATM balance Inquiry:[7]                                                         $0.50

 

 

The State of Colorado uses a JPMorgan Chase debit card to pay out its unemployment insurance (UI) benefits. The bank takes advantage of unemployed Coloradans by skimming fees off of their accounts. If they use a non-JPMorgan Chase ATM, they have to pay $0.50 for a balance inquiry, plus any additional fees the bank that actually owns the ATM charges. Additionally, if they want to go to a bank branch and speak with a teller more than twice per pay period, they are charged $5.00 each time. With unemployment at its highest rate in nearly three decades,[8] this is especially troubling because the maximum weekly UI benefit is only $489.[9] For the thousands of unemployed Coloradans who are struggling to make ends meet, these fees quickly add up.

 

Gouging State and Local Governments with Toxic Swaps

 

City and County of Denver annual loss on toxic swap deals:                 $33 million

Denver Public Schools annual loss on toxic swap deals:                        $35 million

State of Colorado annual loss on toxic swap deals:                                $7 million

City of Aurora annual loss on toxic swap deals:                                      $3 million

 

Since the financial crash in September 2008 banks have raked in nearly $234 million in profits through risky derivatives called “interest rate swaps” that have greatly increased taxpayers’ cost of borrowing. These deals were supposed to save taxpayers money, but they backfired when the Federal Reserve was forced to cut interest rates after the financial crash to help the banks. Now while taxpayers deal with devastating cuts, the banks are using these swaps to suck millions out of government coffers.[10]

City and County of Denver. Even though the City and County of Denver is facing a budget deficit of an estimated $99.4 million[11] for FY2012, the city is losing $33.4 million a year on toxic swaps from the issuance of Airport and Denver Urban Renewal Authority Bonds.

 

Denver Public Schools. Denver Public Schools is already losing as much as $35 million a year on the three swaps to JPMorgan Chase, Bank of America, and Royal Bank of Canada. The state announced more than $375 million in cuts this year for K-12 education. Manual High School in northeast Denver, specifically, will be bracing for a $200,000 budget cut from the state, or about $500 per student.[12] The $35 million Denver Public Schools pays on these swaps would be enough to spare Manual High School and others like it from these devastating cuts.

State of Colorado. Governor Hickenlooper recently negotiated cuts in K-12 education to help balance the general fund budget,[13] and also proposed increasing state park fees, cutting payroll funding for several state departments by 2% and cutting take-home pay for state employees by 2.5%.[14] The toxic swap deals that the University of Colorado Housing Authority and the Colorado School of Mines have are costing the state $6.5 million a year. Officials should take a look at these deals before cutting vital services, increasing fees and taking away money from hard working families.

 

City of Aurora. The proposed budget for FY 2012 includes a $7.4 million budget shortfall, which includes the elimination of more than 30 positions and cost reductions for employee wages and benefits.[15] The $3 million a year the city is losing on toxic swaps from Water District bonds could almost cover more than half of the city’s budget shortfall.

 

Destroying Communities through Foreclosures

 

Projected foreclosures, 2009-2012:[16]                                                       140,223

Cost of foreclosures to Colorado taxpayers:[17]                                         $2.7 billion

Underwater mortgages:[18]                                                                        229,161 (20.2%)

Economic impact of resetting principal & interest to market value:[19]   +$1.2 billion

 

Big banks like Wells Fargo are destroying neighborhoods across the state with record foreclosures. More than 140,000 homes are expected to go into foreclosure in Colorado by the end of next year, putting families out on the street and depleting the local tax base.[20] Abandoned homes are a public hazard and create a whole host of costs to local governments for maintenance and upkeep. A typical foreclosure can cost a local government more than $19,000 for maintenance, upkeep, and lost tax revenues. Colorado taxpayers are going to have to pay $2.7 billion to clean up after the banks’ 140,000 foreclosures.[21]

 

Furthermore, foreclosures drag down property values of nearby homes and can cause entire neighborhoods to owe more on their mortgages than their homes are worth. One out of every five Colorado families is under water on its mortgage.[22] Underwater homeowners are much more likely to default on their loans. Experts agree that the only real way to stem the tide of foreclosures and rebuild our communities is for banks to write down the principals on underwater mortgages. If banks like Wells Fargo reduced all underwater Coloradans’ principals and interest rates to market value, it would pump nearly $1.2 billion into the local economy every year, which would help create 17,389 new jobs and replenish the state and local tax base.[23]

 

 

Not Lending to Small Businesses

 

JPMorgan Chase SBA 7(a) loan decline in FL, FY 2007-FY 2010:                 78%

US Bank SBA 7(a) loan decline in FL, FY 2007-FY 2010:                               75%

Wells Fargo SBA 7(a) loan decline in FL, FY 2007-FY 2010:                         64%    

Total statewide SBA 7(a) decline, FY 2007-FY 2010:                                    54%

Jobs lost in Colorado Jan 2008-Jan 2011:                                                     66,165

 

Even though the big banks got $14 trillion in taxpayer bailouts and backstops so that they could get the economy going again, they are refusing to lend it out to Colorado’s small businesses. Affordable small business lending in Colorado has plummeted since the start of the financial crisis. Lending through the Small Business Administration’s flagship 7(a) program was down 54% in FY 2010 from three years prior. But the declines at JP Morgan Chase and US Bank were even more drastic. Wells Fargo cut lending by 64%, US Bank by 75% and JPMorgan Chase a whopping 78%![24]

 

Meanwhile, Colorado has lost 66,165 jobs since the start of 2008.[25] Small businesses “employ roughly one-half of all Americans and account for about 60 percent of gross job creation,” according to Federal Reserve Chairman Ben Bernanke.[26] In a National Small Business Association survey, 56% of small businesses that had problems finding available credit reported having to lay off employees as a result.[27] The decline in small business lending has had a dramatic effect on unemployment in Colorado.

 

Charging Coloradans Millions in Fees

 

            Wells Fargo account fees in 2010:                                         $132 million

US Bank account fees in 2010:                                              $54.5 million

JP Morgan fees in 2010:                                                         $51.7 million

Key Bank account fees in 2010:                                             $11.9 million

 

Wells Fargo, US Bank, JP Morgan and Key Bank together squeezed Colorado customers for $250 million in fees on their checking and savings accounts in 2010.[28] That is money that Coloradans could have spent stimulating the economy by buying groceries, fixing up their homes, or expanding their small businesses. But instead, this is money that the banks sucked out of our wallets so they could fatten up their own paychecks. At Wells Fargo, 37 cents out of every dollar that the bank takes in goes straight towards bankers’ bonuses and compensation. That means Wells Fargo took $48.8 million out of Coloradans’ bank accounts in 2010 and gave it directly to fund big bonuses.[29]

 

Endnotes