Ericka Xanthe W., a self-employed custom cake maker with a booming business in Berkeley, wants to expand from her home into a physical space but cannot afford $3,000 in rent for the approximately 600 square feet that she needs. She could use $50,000 to $60,000 to get started.
She’s found that other small businesses, particularly cafes and restaurants, left their spaces along San Pablo, Shattuck and Telegraph avenues during the first year of the pandemic – which hobbled food and beverage establishments nationwide – only to find out that property owners wanted to raise rents to recoup losses from months of vacancy.
Xanthe W., 40, who’s lived in Berkeley for 15 years is hoping she and fellow merchants can get money from a new city-run and suddenly internationally talked-about blockchain microbond financing program, approved unanimously by the City Council in December to hire a firm to start the process, according to a statement from the mayor’s office.
“I think a lot of them want to come back to the same spaces because they were part of the community, but simply can’t afford it,” she said.
The microbond program offers an efficient way to make loans – including small ones – with little input from the wider finance industry, city officials say. It gets Berkeley out of funding projects through national public finance investment banks, which resell debt to private clients, the statement says. It adds that projects funded by microbonds will avoid the commonly used municipal bond market as well. That market is “opaque” with “high barriers to entry,” the statement reads.
Berkeley’s microbonds will run on blockchain technology, meaning investments are transparent and can get backing quickly from supporters in or outside the city, city officials say. Blockchain technology refers to a distributed digital ledger that bares the details of bond issues, a type of long-term loan preferred by local governments over the decades to finance major construction work, and cuts out administrative intermediaries.
That advantage will let project leaders borrow the full costs of projects on demand rather than “when a project is entitled and permits issued,” said Kiran Jain, a Berkeley-based lawyer and urban technology strategist who has followed the scheme’s development.
The idea was born out of a weekly meeting between City Councilmember Ben Bartlett and Mayor Jesse Arreguin in 2017, shortly after Bartlett took office and coinciding with the start of them-President Donald Trump’s term. Trump’s administration had lowered corporate income taxes from as high as 39% to a flat 21%, knocking out a piece of Berkeley’s normal funds for affordable housing and renewable energy projects. Two homeless people had died from the cold around the same time, the councilmember recalls.
“The mayor and I were out discussing what to do,” Bartlett said, recalling a meeting at the Eureka! restaurant and eventually bumping into locals who knew about blockchain.
“We’re in a crisis mode right now. The wealth inequality in the country, in California and in Berkeley is like what we’ve never seen. It’s extreme,” he said. At the city level, he added, “this is kind of what we do: We innovate around problems and sometimes they’re money problems. It’s been a really interesting labor of love we’ve been working on for about five years now.”
Residents excited by the micro-bond program are already coming to him with ideas for fundable projects, the councilmember said. They have suggested creating parks, undergrounding power lines, opening a Berkeley shuttle, launching a city-run bike-share, starting public WiFi in the city and offering food vouchers for the unhoused – to name just some of the ideas – he said.
John Moore, a 16-year Berkeley resident, envisions $10 million to $20 million from the microbond program to open a cannabis institute that would educate students on a West Berkeley campus. The funding would last 20 years, he said. Most cannabis-related projects lack the scale to qualify for conventional funding, Moore said.
“Right now, we’re pretty much pigeonholed, and microfinance gives us more opportunities to build and develop,” he said.
Affordable housing projects rank high among the potential beneficiaries as the city looks for ways to shelter the unhoused, the elderly and the low-income. Chris Schildt, a member of the Friends of Adeline advocacy group, said microbonds could finance around $300 million for housing on 5 acres near the Ashby BART station, for example.
Microbond money could help as well to promote the station parking lot’s regular flea market and encourage African Americans to move back to the Adeline Corridor if they left because of redevelopment, said Schildt, a former city planning commissioner. “We’re talking about how to repair the harm done to the African American community.”
The launch of microbonds shows early signs of making Berkeley a trendsetter, Bartlett said. After the city publicized its intent to start the program, he said, private banks, two European countries, the United Nations and the environmental group have tried their own microbond program or expressed interest in trying one.
Ralph Jennings is a UC Berkeley alumnus and career journalist who moved back to the Bay Area last year from Asia.
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