Mike Krauss
To the contrary, in the last several months alone, a growing number of state, county and city governments have taken action to move forward to create a public bank: Manchester, N.H., and Philadelphia city councils, Arizona’s Senate Financial Institutions Committee and the New Hampshire’s House Commerce and Consumer Affairs Committee among them. I can cite many more examples. Interestingly, support has been bipartisan, with even tea party Republicans and occupy Democrats joining hands.
The reason for this interest is that state and municipal governments across the nation struggle with chronic budget shortfalls and a lack of funds for sustainable economic development, job creation, needed investment in infrastructure and schools.
Those charged with municipal finance and stewardship of public funds have long worked to meet the challenge with the same tools, having to choose their own poison: cut services, layoffs, seek employee give-backs, take on more debt or raise taxes.
Philadelphia, for example, recently enacted a new tax on sugary beverages. But Philadelphians are already asking, what about next year? A tax on soft pretzels? Cheese steaks?
There is an alternative for the long term, a new tool for the municipal finance tool kit: creation of a public bank. The model is the almost 100-year-old, state-owned Bank of North Dakota.
The BND in not a retail, commercial bank. It does not compete with the local community banks and credit unions for deposits or borrowers, but instead partners with these financial institutions and uses their existing infrastructure to get affordable credit into the community for new businesses and mortgages.
It makes direct low-interest loans to school districts, invests with other public agencies and authorities in infrastructure, and consolidates student loans at below-market rates.
A public bank can also refinance existing municipal debt at significant savings, providing a reduction of the debt service paid by taxpayers.
And a public bank can take the place of the set-aside “rainy day” funds held by most local governments and school districts, which earn negligible interest and remove funds from productive purposes.
Because it is not a retail bank, a public bank has no branches, tellers, ATMs or retail advertising. It provides no incentive in the form of bonuses and commissions for risk taking. This low-cost business model is profitable.
The profits — at the BND, tens of millions of dollars a year — return each year to the general fund as non-tax revenue or can be reinvested in the loan portfolio, or both.
And the public bank holds the public deposits safely away from the risk-ridden, failure-prone mega banks, while providing municipal banking services at lower cost. Security and savings.
Santa Fe has already concluded a feasibility study, which along with another conducted by an independent citizens’ organization supported the creation of a municipal public bank and identified immediate savings in debt service and steadily increasing job creation and profits.
Municipal governments across the U.S. are drowning in debt and are in dire need of new jobs creating long-term and sustainable economic development models. Public banks are a giant step toward sound municipal finance and democratic economics.
Mike Krauss is chairman of the Pennsylvania Project and founding director of the Public Banking Institute. Philadelphia
