Scott Deshefy: Public banking can help solve budget crises

By Scott Deshefy | The Bulletin 225

In 1935, as Mr. Micawber in “David Copperfield,” comedian and Dickens scholar W.C. Fields underscored financial struggle: “Annual income twenty pounds, annual expenditure nineteen pounds, happiness; annual income twenty pounds, annual expenditure twenty pounds and six, misery.”

Were this Dickens’ London, many of us would be in debtors’ prisons run by CEOs and shareholders the political establishment allows to rig our elections and economy. And the fault is not in retirement pensions or luxuriant public services (unless a trolley network suddenly reappeared last night), it’s in hardwired, politically entrenched two-party myopia.

As Connecticut’s financial crisis worsens, Democrats and Republicans again traipse out the usual smoke, mirrors and empty rhetoric. “Blame the other big party,” they say. “Not mine!” One state senator even suggests the Legislature should file for bankruptcy.

Connecticut’s Green Party and its endorsed candidate Ed Heflin (36th Senatorial District) have a better idea, however. In addition to closing loopholes for taxing the rich and corporations, and imposing a 0.5 percent transaction fee on Wall Street trades, it’s high time we adopted public banking in Connecticut to fund our major improvement projects and reduce our taxes at the same time.

Public banking was a Founding Fathers ideal, and Andrew Jackson was one of several U.S. presidents to combat private central reserve banks in the 19th century. A public bank is owned by the city, county or state that founded it, so the money it makes via loans comes back to taxpayers instead of going to private banks and investors.

The biggest reason North Dakota uniquely operates in the black is public banking. The Bank of North Dakota has contributed to statewide solvency since 1919, highly effective and free of influence from the state legislature and other self-serving offices. Neither does it compete with local banks for deposits from individuals, organizations or businesses. It operates like a credit union accepting only deposits from state, regional and municipal governments.

States and towns send billions of dollars a year to banks and investors either as tax deposits or to pay interest on bonds issued for infrastructure projects, most of which run over budget. Just as with mortgages and car loans, private interest rates push costs far beyond initial projections. By controlling interest, public banks easily save taxpayers 40 to 50 percent on long-term projects.

Consider as well that Connecticut receives 0.14 percent interest on its revenue deposits while private banks invest them as derivatives and other speculative ventures to make unconscionable profits. Absent transaction fees, Connecticut and the federal government see nary a nickel of that unearned windfall.

For public banks, either at state, regional or municipal levels, income from interest and other investments goes directly into the treasury, thereby reducing our taxes. If Hartford isn’t farsighted enough for a public bank, I’d like to see one in New London County. So would Ed Heflin and the Green Party.