‘Initial Community Offering’: Berkeley Turns to Cryptocurrency to Finance Affordable Housing

‘Initial Community Offering’: Berkeley Turns to Cryptocurrency to Finance Affordable Housing

Mar 1, 2018

Faced with an affordable housing crisis and a decrease in the federal funding necessary to address it, the city of Berkeley, California, is turning to the blockchain for a solution.

‘Initial Community Offering’: Berkeley Turns to Cryptocurrency to Finance Housing Program

The plan, concocted by Berkeley mayor Jesse Arreguin and councilman Ben Bartlett, would see the city hold an “initial community offering” — a play on the term “initial coin offering,” which is often colloquially used to refer to token sales — to tokenize “micro” municipal bonds and issue them on a blockchain.

“Essentially, we would like to explore some new ways of financing because we have terrific needs,” Bartlett told CityLab. “And we are concerned about our ability to fulfill our moral and legal obligations for our residents here.”

Berkeley, city officials say, is beset with skyrocketing rent prices and a rising homeless population. Unfortunately, budgetary cuts at the US Department of Housing and Urban Development have reduced housing credits, and the recently-passed tax bill gives corporations fewer incentives to fund affordable housing.

Moreover, the city — known for its progressive politics — worries that it could continue to face hostility from the White House and perhaps even Capitol Hill. Last year, for instance, President Trump threatened to revoke federal tax breaks granted to UC Berkeley, owing to the university’s reputation for protesting right-wing speakers.

Officials say that the proposed “ICO” — which has been planned in coordination with the UC Berkeley Blockchain Lab and municipal finance startup Neighborly — would cut costs versus traditional municipal bond funding and would increase financial transparency.

It would also allow them to issue smaller bonds, enabling residents to contribute to specific social impact projects that would ordinarily be lumped together into a single bond.

“It’s not a speculation tool,” said Bartlett. “It’s like a non-profit, special purpose vehicle, meant to fund social good….It’s ‘crypto-impact’ and that’s its purpose.”

“[T]hese coins will actually represent a real security issued for a specific purpose,” added Kiran Jain, COO of Neighborly. “In this case, municipal bonds for affordable housing or homelessness.”

Details on the proposed coin’s structure remain slim. It is not known whether the coin will be issued on a private or public blockchain for instance, and its backers have not even come to an agreement on what it should be called.

However, they do know that they want it to remain a Berkeley initiative — one not characterized by the speculative frenzy that has characterized the global token sale markets over the past 18 months or so.

“It’s not meant to be traded all over the world,” Bartlett said.

Of course, the proposal must still receive a city council hearing and vote before it can be put into practice, but Bartlett said that even if it failed he would seek to realize the project through the private sector.

“It seems like a fairly obvious thing to do,” he said. “Traditionally, financing is so expensive for cities and so unwieldy and so not connected to people.“

Governments Issue Currency on the Blockchain

Berkeley is not the first government body to launch its own cryptocurrency.

As Strategic Coin reported, Venezuela recently launched the “petro” to enable the nation to evade US economic sanctions, and several other countries have discussed similar plans as well.

The city of Dubai has also said that it will develop a blockchain-based digital currency called “emCash,” which residents will be able to use to pay for public services as well as private transactions.

In fact, many analysts expect that the increasingly-digital nature of the modern world will force central banks to at least consider using a blockchain- or distributed ledger-based system to manage digital versions of their national currencies, even if they ultimately decide to so through other means.

Another Approach to Municipal Tokens

James Sowers, an angel investor and an advisor to five initial coin offerings, envisions a URP (underrepresented population) token. Sowers suggests this could be done by creating a foundation and air dropping tokens to an underrepresented population. Merchants would be incentivized via tax credits to accept the token as a form of payment. A challenge to this approach is that a government issued blockchain phone would have to be given to those in the program.

Applying this idea to the Berkeley initiative, the government could issue a municipal token to finance construction of affordable housing. The token would earn interest, redeemable versus property taxes. All local residents could be air dropped tokens, with tenants earning additional tokens every time they paid rent. If the property value increased, the value of the tokens would increase, thus creating a shared sense of ownership in the community.


Content Director Lawrence Hecht contributed to this article.

Featured Image Source:  LAgirl525 via Wikimedia Commons