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Bellingham City Council joins the public banking conversation

Bellingham City Council joins the public banking conversation

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Filed on 05. Feb, 2020 in Contents, Features

The discussion topic of public banking is not new in the United States and the city of Bellingham has joined the conversation in Washington to create a publicly-owned depository bank.

On December 19, 2019, the Bellingham City Council Committee heard a presentation from state Senator Bob Hasegawa, outlining the advantages of a public bank system in Washington.

With a unanimous vote, the committee agreed to develop a draft of a resolution in support of a public bank in Washington and explore the benefits it could offer Bellingham.

Prior to his presentation in December, Sen Hasegawa had also presented to the Whatcom County Council and the Bellingham City Club on the same topic.

The presentations snowballed because the concept captured the imagination of good, progressive Bellingham residents,” Hasegawa said. “I have given presentations all over the state and the idea resonates across the political spectrum.”

Senator Hasegawa has introduced nine state bank bills since 2009 and recently introduced Senate Bill 5995, to establish the Washington Investment Trust.

If formed, the Washington Investment Trust would handle state and local tax revenue and could leverage the core of the state’s equity to benefit Washingtonians.

A state bank could allow for access to credit for small businesses and provide low-interest rates for people who take out student loans. Over time a public bank would establish independence from Wall Street banks and develop more financing capacity for future generations, Hasegawa said.

A public bank system could generate new revenue for the public without raising taxes and could increase the ability to finance public infrastructure projects such as affordable housing, he noted during his presentation. You can watch the full presentation here https://meetings.cob.org/Meetings/ViewMeeting?id=2147&doctype=1

Sen. Bob Hasegawa

Sen. Bob Hasegawa

It’s the best use of taxpayers dollars for the taxpayer’s benefit,” Hasegawa said. “With a public bank, we would be building our internal capacity to finance future projects on a greater magnitude than just selling bonds.”

Senate Bill 5995 to establish the Washington Investment Trust is modeled after the only public bank in the country, the Bank of North Dakota.

The Bank of North Dakota was established in 1919 and was opened with $2 million of capital. The idea for the bank was intended to promote agriculture, commerce and industry growth within the state while allowing farmers to establish independence from the practices of commercial banks, according to bnd.nd.gov. To read more about the history of the Bank of North Dakota and to learn about its primary functions visit https://bnd.nd.gov/history-of-bnd/

During the Great Recession of 2007-09, the Bank of North Dakota experienced no decline in state revenue and has recently recorded record profits, Hasegawa notes. The profits from the bank are returned to the people of North Dakota, he added.

The idea of public banking has seemingly caught the attention of other cities, counties and states around the country. In October, California governor, Gavin Newsom signed AB 857, known as the Public Banking Act allowing cities and counties to create or sponsor public banks.

In November, lawmakers in New York introduced legislation that would create the countries first publicly owned electronic banking system.

Some opponents to the idea of a public bank model in Washington say it would be a risky endeavor that could limit the state’s borrowing capacity and that funding for the project could put the state’s pension funds at risk.

The Office of the State Treasurer released a ‘Study of the Studies’ which compiles data from 12 different states and advocates that public banking has higher risk and lower return than the current private bank system. The report can be viewed here https://tre.wa.gov/wp-content/uploads/Public-Banking-Report-Study-of-the-Studies.pdf

State Treasurer Duane Davidson, proposes improvements to our current system.“With our Local Program we are able to bundle issuances’ together that might otherwise be costly for a small local entity to handle and get them a really good rate, something I doubt a public bank could come close to,” Davidson said. “That debt stays as that local entities debt and is serviceable by them rather than it possibly being brought into the state.”

I think with a public bank it is quite likely that the debt from local governments would be interpreted as state debt, thus compromising the state on its borrowing capacity for the things it is responsible for such as schools and roads, Davidson said.

The local program is working better and better. It went from two issuances’ a year to three and the more popular it becomes there is potential to increase offerings to a quarterly, Davidson added.

Capitalizing a public bank system in the state could potentially be a challenge. One source of capital for a public bank would be to tap into the Local Government Investment Pool, which some proposals have mentioned, Davidson said.

If a state bank were to tap into that there would have to be legislation that would make the LGIP captive funds and mandate that local governments invest,” Davidson said. “The core of those investments could be loaned out for 20-30 years. The trouble is we don’t invest that long with any of our portfolios now and the strategy of the LGIP says safety, liquidity and then rate of return.”

Another proposed source of capital would be to dip into the State Investment Board. However, Davidson says using pension money just mathematically doesn’t work.

Historically over the last couple of decades we have made an average of a 7% rate of return on over a $100 billion dollar portfolio,” Davidson said. “If you create a public bank, which is intended to offer low-cost financing for capital projects, it would be something like a 2.5% interest rate on a 20-year loan. That’s a far cry from the 7% we’ve been making.”

The legislature would have to make up that difference in the funding of our pensions, Davidson said.

I understand there is a lot of anti-big-bank sentiment out there,” Davidson said. “At the same time, I don’t think the solution to some of the crisis we’ve experienced, due to the miss-steps of the finance industry, are going to be solved by the creation of a public bank.”

Currently, the state of Washington banks with U.S. Bank. Before that, it was Bank of America and before that, it was Wells Fargo. When the state puts out its request for proposal every few years only one bank ever bids on it, Hasegawa said.

When people say corporations rule the world, which it seems like they do, the banks are an order of magnitude more powerful than the corporations,” Hasegawa said. “We have to break ourselves free of this fear of ourselves to manage our own money.”

A study from the Evans School of Public Policy and Governance is currently pending and when complete will present a potential business plan for a publicly-owned depository bank in Washington.

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bGk+PHN0cm9uZz53b29fc2xpZGVyX2hlYWRpbmc8L3N0cm9uZz4gLSBSZWNlbnQgbmV3czwvbGk+PGxpPjxzdHJvbmc+d29vX3RoZW1lbmFtZTwvc3Ryb25nPiAtIFRoZSBKb3VybmFsPC9saT48L3VsPg==