There’s no such thing as a panacea to Connecticut’s budgetary woes, but there could be something close: a public bank.
North Dakota is the only state in the U.S. that has one. This century old institution, Bank of North Dakota, has spun off $300 million in revenue to the state over the last decade alone and has also provided some significant functions.
First, BND is an interface between North Dakota credit unions and the federal government. In fact, the state has the most credit unions per capita in the nation. When a farm needs a short-term loan, local credit unions act as an agent for the state bank and can immediately sell their loan to get it off their books. This has worked exceptionally well for weathering the storm of the Great Recession, bolstering both local banks and local businesses by continuing its mission of lending.
Over a third of the Bank of North Dakota’s function is providing low-cost loans to state students. Even if you don’t believe that higher education should be free, it at least shouldn’t come with punitive costs. Education loans are the only type of debt that cannot be forgiven – private universities and banks lobbied hard for this, and we’ve created a structure where our youth are essentially indentured servants. How do we expect millenials to retire when they are in debt until their 50s? What money do they have to invest when it is all going to pay down loans that cannot be forgiven?
We need to implement a public bank in Connecticut because it allows for consistent and cheap lending. It works both for the state as an institution, and it works for its residents.
Think about it this way: when a municipality needs new construction they have to go to Wall Street for a loan. This is called bonding. By selling a bond, the municipality promises to pay anywhere from three to seven percent interest over decades.
This means that more than half of construction costs over time goes directly to interest payments. If we had a state infrastructure bank, municipalities would be able to get loans for nearly 1 percent, the same rate that the large private banks get from the fed. Even at a two percent interest rate our Connecticut state bank would be profitable, because the mission of the bank wouldn’t be to simply make money – it would exist for the public good.
And, there would be no overhead: no bank tellers, no ATMs, no private deposits (so no federal insurance), no board members and CEOs taking extravagant pay, no advertising, no physical locations. The extravagant costs to run a private bank don’t exist with a public bank so the state can turn a profit while also benefiting municipalities for their construction needs.
One big problem we experienced during the Great Recession was large banks buying up smaller banks with the public money that bailed them out. Instead of increasing lending, they cemented their hold on the banking system. Small business had a hard time getting short term, low interest loans to weather the storm and went out of business.
The mission of a Connecticut public bank would be to help small business and keep local economies humming, even in a downturn. With the addition of providing short-term micro loans – or business development grants – we would have a way to help citizens grow independent wealth – something we are sorely missing in Connecticut as our middle class gets gutted.
We are warned to begin preparations for the next recession in Connecticut as tax receipts decline, placing necessary safety net programs in peril. A public bank acts as insurance against this with the ability to bolster our general fund reserves when we need help the most – and growing naturally when we don’t. By the end of this year, leaders are calling for us to have over $2 billion in our Rainy Day Fund.
That’s great when protecting ourselves from a downturn – but it also means there is less money allocated for mental health services, re-entry programs, and addiction service programs – to name a few. We should be continuously investing every spare dollar in ourselves, no matter if the economy is up or down. It is the only way to truly bounce back from the last recession and begin growing our economy again.
Relying on the private market for lending capital simply does not work – not when the priority of large, private banks is simply to make a profit. That’s not bad in a vacuum, but it puts an incredible strain on small business and municipalities that need lower cost loans.
By keeping our money in state and not sending bundles of cash to Wall Street means we have more to invest in ourselves. We can do this. The notion of a public bank is becoming increasingly popular – it was one of the main platform points of Gov.-elect Phil Murphy in nearby New Jersey.
While Connecticut seems committed to being last to the finish line on a number of initiatives meant to strengthen our economy, perhaps this is one area where we can lead. The possibilities of a public bank are unlimited, and the gentle folk of North Dakota sure are happy with their set up. Let’s take the successes of what other states do – replicate them – and make them even better for Connecticut and its residents.
Rep. Josh Elliott (D-Hamden) represents House District 88. This op-ed originally appeared on CTViewpoints.org.